Ocwen’s Shared Appreciation Modifications are delivering additional returns to RMBS Investors (est.
Thanks to Ocwen REALPortal and some persistent digging into the data, we discovered 1,260 loans that we believe have delivered additional returns to RMBS investors from shared equity appreciation since 2013. This is extra cash delivered via a loss recovery that investors surely did not expect. While Ocwen REALPortal does not flag their proprietary Shared Appreciation Modifications, from Ocwen’s 2016 10-K, we know over 55,000 modifications under the SAM program had been completed. With rising home prices and assuming most of Ocwen’s SAMs are successful, as homeowners move or refinance, we expect these loans to continue delivering extra cash flow to investors. Therefore, we have a bunch of work left to do on this subject: 1) estimate by deal the number of SAM loans and their potential recovery, and 2) verify that all recovery cash from SAM loans are being paid out. Step 2 will be even more important as Ocwen starts moving their servicing system over to Black Knight’s LoanSphere MSP Servicing system (BKFS press release 11/1/17). For now, here is what we know.
From Ocwen Press Release, dated July 26, 2011
OCWEN OFFERING MORTGAGE MODIFICATIONS THAT RESTORE EQUITY FOR UNDERWATER BORROWERS BUT LET LOAN INVESTORS SHARE IN APPRECIATION WHEN MARKET RECOVERS
Ocwen's Shared Appreciation Modification (SAM) program reduces delinquent customers' principal owed but also compels them to share some of the appreciation with the mortgage's owner (not the servicer) if the house increases in value by the time they sell or refinance it.
With a SAM, the principal of the loan is written down to 95% of the current market value of the home.
The written-down portion is forgiven in one-third increments over the next three years, so long as the homeowner stays current on the modified mortgage.
When the house is later sold or refinanced, the borrower must share 25% of the appreciation with the investors that own the loan; borrowers keep 75% of the gain.
Ocwen’s CEO Ron Faris stated, "Investors who own the mortgages benefit too. SAM modifications keep loans performing and, equally important, they will deliver additional returns once the housing market rebounds."
Ocwen launched the SAM program on a pilot basis in August 2010.
Table of Contents:
Deal List: pages 2-5
Excerpts from an Ocwen SAM Agreement: pages 6-7 (we found an actual agreement online)
Examples: pages 8-15 (these examples are interesting and educational)
Contact us at 203-276-0672 to become a client and access all reports and attachments.
