Ocwen, Seeking Volume, Explores FHA Servicing Buys.(News)

Byline: Kate Berry

Washington-Ocwen Financial Corp., best known for servicing subprime mortgages, is looking to buy servicing rights for Federal Housing Administration loans, underscoring the pivotal role the agency has come to play in the industry.

The West Palm Beach, Fla., company had not serviced many FHA loans since the late 1990s, its president, Ron Faris, said on a conference call to discuss first-quarter results.

This was largely because FHA's market share was declining during the housing bubble. But now that the bubble has burst, "that product has really taken over the gap left by subprime, and that's a main driver of why we're exploring opportunities to pick up [FHA] servicing," he said.

FHA borrowers tend to have lower credit scores, higher delinquencies and slower prepayments compared with prime borrowers, "which fits with us," Mr. Faris said.

Analysts said a return to servicing FHA loans could reignite Ocwen's growth after more than a year of being unable to add servicing rights because the subprime market has vanished. "One of the challenges they had is, their core market was servicing subprime mortgages and there were no fresh subprime mortgages being originated," said Robert Napoli at Piper Jaffray & Co.

In February, Freddie Mac hired Ocwen to service 5,000 low-documentation loans that were at least 60 days delinquent.