May 6, 2014

Doug Kass likes Ocwen Financial

One of my long holdings is Ocwen Financial [Ticker Symbol: OCN], a leading player in origination and servicing of sub-prime loans. The non-prime mortgage business is likely to undergo a renaissance. 

No company is better positioned than Ocwen, the largest player in sub-prime. Prior to the financial crisis, about 60% of U.S. households could qualify for a prime mortgage, and about 10% could qualify for a sub-prime mortgage. The remaining 30% were renters. 

Post-crisis, approximately 30% of households qualify for a prime mortgage, and sub-prime is almost nonexistent. So unless we're destined to become a nation of renters, something has to change. At the same time, the recent rise in home prices hasn't coincided with income gains for average home buyers. That represents an opportunity for non-prime mortgage companies. 

Gone are the days of low- and no-documentation non-prime loans. Today, these loans are very secure. The non-prime industry space has been abandoned and created a void for Ocwen.