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Home Loan Servicing Solutions: A Potential Tax-Avoidance Scheme Hidden Behind A Veil Of Complexity With 35% Downside
- HLSS’ business model is unique and is a new post-recession structure never before seen in the mortgage industry. We believe it is significantly misunderstood amongst investors.
- HLSS depends solely on Ocwen for its revenue. Recent negative impacts on Ocwen are not reflected in HLSS, unlike in Ocwen’s other affiliated company (Altisource).
- HLSS provides tax-avoidance benefits to Ocwen shareholders and does not exist with its own business purpose, which we believe is unsustainable and can potentially come under investigation.
- We believe current lawsuits against Ocwen and its affiliates will unveil HLSS’ complexity and tax-avoidance scheme to provide significant tax-adjusted downside of at least 35%.
Update: Home Loan Servicing Solutions Q3 Earnings
- Unadjusted EPS of $0.69 and adjusted EPS of $0.58 were strong.
- Monthly dividends of $0.18 were declared for October, November, and December.
- The forward dividend yield is over 10%, but these are not qualified dividends.
- Performance exceeded my expectations and called my opinion into question.
Is Home Loan Servicing Solutions One Of The Last Ethical Companies?
- The REIT industry is rife with conflicts between management and shareholders.
- Management usually wins.
- I dug through the SEC filings on HLSS to look for the dirt. I was shocked.
Tue, Dec. 23, 9:30 AM
- “I am deeply proud of all that we have accomplished,” said Bill Erbey on a conference call last night after being forced out of Ocwen Financial (NYSE:OCN) and its related web of companies. He has the "utmost confidence that Ocwen is in capable hands." Those hands would be new Executive Chairman Barry Wish, a former investment banker who chaired Oxford Financial Group - the corporate predecessor of Ocwen - from 1988 to 1996.
- Also on the call, CEO Ronald Faris said Ocwen would exit from the business of servicing government-backed mortgages, and focus on just non-agencies. The shift (and sale of the agency portfolio) should free up about $1.7B in capital which could be reinvested or returned to shareholders.
- Another focus will be on building what is currently Ocwen's small operation in mortgage originations, and in packaging/selling MBS.
- Shares are off another 1.3% premarket after yesterday's cratering.
- ASPS +1.6% premarket, HLSS, RESI, AAMC no action.
- Previously: Sterne Agee: Ocwen settlement to "cripple profitability" (Dec. 22)
- Previously: Ocwen tumbles as Erbey exits (Dec. 22)
Mon, Dec. 22, 9:17 AM| Comment!
Mon, Dec. 22, 9:12 AM
- “You’re basically taking away from shareholders the ability to run their company,” says former SEC official Ira Lee Sorkin, speaking about Ocwen's (NYSE:OCN) extraordinary settlement with Ben Lawsky's NY Department of FInancial Services. “You’re telling the company in effect that the regulator is now running the company.”
- Not only has the maestro behind the Ocwen family - Bill Erbey - been pushed out, but Ocwen is paying a $150M fine, appointing two Lawsky-approved board members, and allowing the state to appoint an outside monitor with oversight over just about all of the company's operations.
- A bull might say one can now buy Ocwen without regulatory risk. A cynic might say Ocwen has just become a government experiment on how it would like a servicing operation to be run.
- OCN -7.5%, ASPS -1.4% premarket. Also part of the Ocwen web: AAMC, RESI, HLSS
- SEC Form 8-K
- Previously: Ocwen executive chairman to resign (Dec. 22, 2014)
Thu, Nov. 20, 1:19 PM
- Heavily-shorted Ocwen Financial (OCN +9.8%) is having a big session with no new news readily apparent at the moment. We already know Ben Lawsky is exiting the New York Department of Financial Services. Will his replacement be any softer on Bill Erbey's empire?
- Altisource Portfolio Solutions (ASPS +4.4%), Altisource Asset Management (AAMC +0.6%), Altisource Residential (RESI +2.1%), Home Loan Servicing Solutions (HLSS +1.8%)
- Ocwen competitors: Nationstar Mortage (NSM +4.7%), Walter Investment (WAC +4.7%).
- Previously: Specialty servicers on the move as Lawsky looks to be exiting
Fri, Nov. 14, 3:43 PM
- Alongside earlier news that the $39M MSR purchase deal with Wells Fargo is officially kaput, Ocwen FInancial (OCN -8%) has lost a fan in Leon Cooperman, whose Omega Advisors unloaded its stake - which had amounted to 1.26% of fund holdings - in Q3.
- Meanwhile, Nationstar Mortgage (NSM +4.9%) is nicely higher perhaps on speculation it could step in to buy all, or more likely part of the Wells Fargo MSRs.
- Turning back to the Ocwen family, Sterne Agee reminds that Altisource Portfolio Solutions (ASPS -6.3%) gets 70-75% of its revenue from Ocwen or Ocwen-owned and serviced loans.
- Altisource Residential (RESI -1%), Home Loan Servicing Solutions (HLSS -1.1%)
Wed, Nov. 12, 11:29 AM
- With regulatory headaches all over, Altisource Portfolio Solutions (ASPS -20.2%) before the bell announced its exit from the Lender Placed Insurance brokerage business, and said to expect a $0.50-$0.65 per share hit to quarterly earnings going forward.
- A bull on ASPS during its remarkable run higher earlier this decade, Doug Kass one week ago announced he was dipping back into the stock (along with OCN) as he expects an Ocwen settlement with NY's DFS in 2015's first half. ASPS, he says, is a free cash flow machine, and has already repurchased about 10% of the float this fiscal year. Not wanting to lift its hind leg to regulators, ASPS will likely wait until several months after a DFS settlement to be even more aggressive with capital returns.
- Altisource Asset Management (AAMC -4.5%), Altisource Residential (RESI -5.4%), Home Loan Servicing Solutions (HLSS -1.1%)
Wed, Oct. 29, 3:36 PM
- Height Analytics analyst Edwin Groshans suggests $40M could be a reasonable number to send Ben Lawsky and his NY Dept. of Financial Services on their way.
- Ocwen (OCN +6.8%) is set to report its Q3 before the bell tomorrow, with a conference call coming at 11 ET.
- Altisource Portfolio Solutions (ASPS +1.4%), Home Loan Servicing Solutions (HLSS +0.2%), Altisource Asset Management (AAMC -4.7%), Altisource Residential (RESI -0.4%)
Mon, Oct. 27, 12:06 PM
- Home Loan Servicing Solutions (HLSS -2.3%) President and board member John Patrick Van Vlack steps into the sharp decline over the past few sessions, picking up 10K shares of company stock today at $17.64 each.
- Previously: Another towel thrown in on Home Loan Servicing; anybody catching?
Mon, Oct. 27, 9:05 AM
- "When they throw in the towel catch it," once said David Kotok. Citigroup is the latest to do so on Home Loan Servicing Solutions (NASDAQ:HLSS), downgrading to Neutral from Buy after a 16% plunge in the stock over the last four sessions amid charges leveled at Ocwen Financial.
- Previously: Compass Point downgrades Home Loan Servicing
- Shares -1.6% premarket
Thu, Oct. 23, 9:36 AM
- "Our revised view is based on the increased risk to HLSS's revenue and assets tied to the Ocwen servicing relationship," says analyst Jason Stewart, downgrading the stock from Buy to Neutral, with price target of $18.
- "Historically, HLSS has been relatively immune from Ocwen's (NYSE:OCN) regulatory risk and for good reason. HLSS does not touch the consumer as it is simply a capital markets vehicle."
- Stewart notes the last five "Lawsky events" have thus had little effect on HLSS's stock price, but this time could be different, and the "real asset risk" to HLSS is increasing.
- "We are moving to the sidelines and expect long term buyers will see a lower entry point for the stock."
Wed, Oct. 22, 5:39 PM
Wed, Oct. 22, 11:06 AM
- Bank of America and Evercore Partners throw in the towel on Ocwen Financial (OCN -8.5%), downgrading to Neutral/Hold, following yesterday's letter from Ben Lawsky's NY Dept. of Financial Services and the company's bungled response.
- Is it time to start thinking about a takeout? Sitting on Ocwen's board and presumably still a sizable shareholder is Wilbur Ross (NASDAQ:WLRH) who sold his Homeward Residential Holdings to Ocwen in 2012.
- Altisource Portfolio Solutions (ASPS -9.6%), Home Loan Servicing Solutions (HLSS -5.3%), Altisource Asset Management (AAMC -4.3%), Altisource Residential (RESI -4.5%).
- Other industry players: Nationstar Mortgage (NSM), Walter Investment (WAC +0.5%), New Residential (NRZ +0.1%), PennyMac FInancial (PFSI -0.4%).
- Previously: Moody's downgrades Ocwen following DFS allegations
Wed, Oct. 22, 7:07 AM
- Ocwen Financial (NYSE:OCN) is cut to B2 from B1, Altisource Portfolio Solutions (NASDAQ:ASPS) to B2 from B1, and Home Loan Servicing Solutions (NASDAQ:HLSS) to B2 from Ba3. All three remain on review for additional possible downgrade.
- The downgrade to Ocwen stems from yesterday's letter from the NY Dept. of Financial Services raising serious issues - including backdating of letters to borrowers - with the company's systems and processes. The HLSS and ASPS downgrades are driven mostly by their reliance on Ocwen for business.
- Previously: Ocwen family tumbles as Lawsky targets backdating
Tue, Oct. 21, 2:57 PM
- "We believed we have solved the letter dating issues that have been identified to date," says Ocwen Financial (OCN -19.1%), responding to a letter from the NY's Dept. of Financial Services alleging the company backdated correspondence in an attempt to keep those possibly eligible for loan mods from moving forward with the process.
- The company says software errors caused the improper dating to some borrowers.
- "As always," says Ocwen, "our goal is to avoid foreclosure," and notes in the case of 283 borrowers in New York who received incorrectly dated letters, 281 remain borrowers with the company.
- Source: Press Release
- Previously: Ocwen family tumbles as Lawsky targets backdating
- Altisource Portfolio Solutions (ASPS -12.5%), Altisource Asset Management (AAMC -5.9%), Altisource Residential (RESI -5.7%), Home Loan Servicing Solutions (HLSS -5.2%).
Tue, Oct. 21, 12:22 PM
- Conducting a review of Ocwen Financial's (OCN -10.9%) servicing practices, Ben Lawsky's team at the New York Dept. of Financial Services has "uncovered serious issues ... including Ocwen's backdating of potentially hundreds of thousands of letters to borrowers, likely causing them significant harm."
- Full letter from DFS to Ocwen management
- In a typical case, says DFS, borrowers received a letter denying a mortgage loan mod, with the letter dated more than 30 days prior to the date Ocwen mailed it. The borrowers had 30 days to appeal the denial, but that period had elapsed before they ever received the letter.
- Even worse, says DFS, Ocwen did nothing to investigate or address the issue when an employee alerted the company's VP of Compliance.
- "If Ocwen cannot demonstrate immediately that it is capable of propertly servicing borrowers' needs, the Department intends to take whatever action is necessary to ensure that borrowers are protected."
- Altisource Portfolio Solutions (ASPS -8.3%), Altisource Asset Management (AAMC -5.9%), Altisource Residential (RESI -2.2%), Home Loan Servicing Solutions (HLSS -2.2%).
Thu, Oct. 16, 9:46 AM| Comment!
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