NEW YORK (TheStreet) --Ocwen Financial (OCN) one of the nation's largest collectors of mortgage debt, is considering branching out into other types of consumer debt collection.
"That's something that we are looking because we're generating substantial amount of excess cash flow in Ocwen," Chairman Bill Erbey told TheStreet during one of several interviews for this profile published Wednesday. "We haven't told anybody publicly what that would be," he added.
Investor Wilbur Ross, who sits on Ocwen's board of directors, believes such an expansion would be a natural fit.
"When you think about what the skill sets are, it's managing very complex interactions with consumers under very stressful circumstances, mainly default, and doing it with a lot of, I don't want to say entry level, but almost entry level people, and doing it on a vast scale, and along the way managing that process in two continents, mainly the Americas and India. So those are skill sets that are pretty rare, and pretty valuable. There are all sorts of other consumer debt instruments that I have no doubt that they could service. So even if something were to go slow with mortgage servicing, I think there are plenty of other opportunities. Consumer's finance is not going to go away, and there aren't that many people that are good at it," Ross says.
Ocwen reported third quarter earnings Thursday, though the issue did not come up on a conference call with analysts and investors.
Rick Biggs, partner at New York-based hedge fund Consector Capital, which owns Ocwen shares, sees an opening for Ocwen in consumer debt collection. He says Portfolio Recovery Associates, Inc. (PRAA) and Encore Capital Group (ECPG) "are the best and at this point almost the only real solid operators so there is room I think for a little more competition." (PRAA) But Zach Gast, analyst with research firm CFRA, believes collecting consumer debt be a more difficult transition for Ocwen than it may seem on the surface. That's because non-mortgage-related consumer debt collecting is based on a different business model. First of all, the amounts involved are smaller, meaning lots of investment in infrastructure for a relatively small payoff. "Mortgage is the one that's a huge debt. It stays outstanding for 30 years. So if I've got to employ calling centers -- you know, vast automated systems to send out statements every month to certain customers and know the right timing and program all that in, that's very different when you're talking about a $500 credit card bill that's overdue," Gast says. The analyst adds, "if you think paperwork problems are difficult on a $150,000 mortgage, wait 'til you get a $500 credit card bill, where the consumer has probably disputed at least one of those charges." Consumer debt collectors tend to focus on buying debt that has already defaulted, which they buy for pennies on the dollar, Gast says.
According to its most recent 10-K, Portfolio Recovery Associates' portfolio of credit card debt, which was by far its largest segment, stood at $49.3 billion, in terms of the original amount that was owed. It had paid just over $1.9 billion for the chance to collect that debt. Anything it collects above that amount, minus expenses, would fall to the bottom line. By contrast, mortgage servicers such as Ocwen do not buy the debt. They buy what are known as mortgage servicing rights (MSRs), which entitles them to collect a fee in return for servicing the mortgage. Ocwen services both performing and non-performing loans, but its specialty is the non-performers. It is, in fact, the largest servicer of non-performing residential mortgages in the U.S. It services $130 billion worth of unpaid principal on outstanding mortgages, or 13% of the total $1 trillion in delinquent U.S. mortgages, more than Wells Fargo, Bank of America or JPMorgan Chase, according to data through June 30 from trade publication Inside Mortgage Finance.
--Written by Dan Freed in New York
Follow @dan_freed
Soeren Stache, dpa/AP NEW YORK -- Twitter Inc. was sued for $124 million Wednesday by two companies that said the social media darling defrauded it into pushing forward with a doomed private sale of its shares to stoke investor interest for its initial public offering. In a lawsuit filed in U.S. District Court in Manhattan, Precedo Capital Group and Continental Advisors accused Twitter of using the aborted sale as a means to give the money-losing company a $10 billion market valuation and higher IPO price. "Twitter never intended to complete the offering on behalf of Twitter stockholders, in the private market, thereby causing substantial damages to the plaintiffs in the loss of commissions, fees and expenses, as well as through their business reputation," the lawsuit said. The financial firms seek $24.2 million of compensatory damages, $100 million of punitive damages, and other remedies. Jim Prosser, a spokesman for Twitter, didn't immediately respond to a request for comment. The lawsuit comes as anticipation builds for Twitter's IPO, widely considered the most highly awaited since Facebook Inc. (FB) went public in May 2012. Last week, the San Francisco-based company said it would offer its shares at between $17 and $20 each, valuing the company at up to about $11 billion. Twitter was holding its first large investor lunch in New York on Wednesday. Institutional investors who met with Twitter this week say they are optimistic about its upcoming IPO and see it as a more conservative offering than Facebook's splashy IPO. Like many Silicon Valley start-up companies, Twitter has paid employees and contractors using private stock. According to the lawsuit, it was worried about repeating some problems afflicting Facebook's $16 billion offering. In particular, the lawsuit said Twitter sought to avoid the potential for excess supply of company shares by controlling the buyers and sellers of those shares in the private market. Precedo, an Arizona-based broker dealer, and Continental, a Luxembourg financial adviser, said they were contacted by GSV Asset Management, an approved buyer of Twitter stock, about marketing a fund that could only purchase Twitter shares. GSV allegedly had negotiated an agreement with Twitter in which it would arrange the sale of up to $278 million of shares owned by employees and others, in blocks of $50 million. Precedo and Continental said they lined up commitments for the first $50 million block, and set up road shows in the United States, Europe and Asia where GSV managing partner Matthew Hanson disclosed material non-public information about Twitter. But they said Twitter eventually blocked the sale after learning that Precedo and Continental had attracted investors willing to pay $19 a share, considerably above the $17 or less offered in other private market transactions. The firms now say Twitter "never intended" to allow the private stock sales to go forward. "Twitter's intention was to induce Precedo Capital and Continental Advisors to create an artificial private market wherein Twitter could maintain that a private market existed at or about $19 per share for the Twitter stock," they said. The case is Precedo Capital Group Inc. v. Twitter Inc., U.S. District Court, Southern District of New York, No. 13-07678.
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