Ocwen Financial came on my radar early in the year when my mortgage from GMAC was sold to them. Since then their stock has been shooting through the roof and I wanted to investigate if they would be a good company to start my financial position in.
Their business model is simple, buy sub-prime mortgages and get the delinquent homeowners to refinance. So far their track record has been excellent. Banks are dumping sub-prime mortgages giving Ocwen huge room to grow. Their current portfolio is 400 billion and is expected to grow to a trillion in 2 to 3 years time. Talk about a risky business with over a trillion dollars in sub-primes and the hope that they can keep reducing delinquencies.
I give them credit for staying focused. They are selling off prime mortgages and keeping the sub-prime. Interestingly, it's risky to tie up capital in prime mortgages because those homeowners usually have better credit and could refinance with someone else at a lower rate. What Ocwen wants is steady income from homeowners that can just barely afford the property but with bad enough credit that they can't leave.
Since my portfolio size is relatively small I probably won't take on this risk. It's an interesting speculative play but it's basically a company making money hand over fist on the cleanup of the housing bubble.
