Will Home Loan Servicing Solutions Finance Profits For Investors?
By Christina Wise, Investor’s Business Daily
Today we’re going to look at Home Loan Servicing Solutions (HLSS), which is based in the Cayman Islands. It was started by executives from Ocwen Financial (OCN), and was featured in a New America article on May 22.
It has an interesting business strategy: It buys mortgage servicing rights, also called MSRs, from Ocwen. And it keeps Ocwen as a subservicer and pays it a portion of the fees.
Meanwhile, Home Loan takes on the responsibility of financing servicing advances for the loans.
Mortgage servicing fees are usually paid to collect monthly mortgage payments, set side taxes and insurance premiums in escrow and forward interest and principle paid on loans to the mortgage lenders.
Home Loan’s goal is to buy very high-quality assets that have no credit risk and limited price risk.
Key Fundamentals
• And that strategy has been bringing in some nice profits lately. Earnings were up 340% last quarter.
• Going forward, the year-over-year comparisons get tougher. And analysts see earnings rising 52% in 2013 but just 4% in 2014.
Stock Checkup
Stock Checkup shows Home Loans’ Composite Rating is 87. That rating gauges a stock’s fundamental and technical action.
Ocwen Financial and Nationstar Mortgage (NSM) have higher ratings. Nationstar broke out of a cup-shaped base recently, but has since fallen back near its buy point.
Chart Analysis
Home Loan also stumbled after breaking out recently. The MarketSmith chart above shows it cleared the potential buy point in a flat base earlier this month.
Then in the days afterward it fell below it as it pulled back to the 50-day moving average line.
Volume was light during the pullback — which is what you like to see because it tells you big investors were not dumping shares.
The stock found support at the 50-day and in recent days has been trying to bounce up from that benchmark line.
But so far, volume has been fairly light. You want to see above-average volume on a rebound up from the 50-day. So watch to see if volume kicks in.
If that happens, the ideal time to buy would be as close to the 50-day line as possible once the volume becomes heavier.
For more on this story go to:
