Why Shares of Nationstar Mortgage Holdings Popped

By Markets Fool.com

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

Continue Reading Below

What
Shares of Nationstar Mortgage Holdings rose 12% after Ocwen Financial announced it was selling to Nationstar the mortgage servicing rights on a portfolio of roughly 81,000 performing loans with a total balance of $9.8 billion.

So what
Although the terms of the transaction weren't part of the announcement, the fact that investors are bidding up Nationstar's shares suggests the market believes Nationstar acquired the servicing rights on excellent terms.

There is reason enough to believe this: Following a $150 million settlement with New York's financial regulators last December, Ocwen Financial announced it would exit its activity servicing government-backed mortgages. Federal housing agency Freddie Mac owns the portfolio of around 81,000 loans that is the basis for this transaction. As such, Ocwen was a motivated seller of the associated servicing rights.

Interestingly, shares of Ocwen are up about 10% today. It appears that shareholders consider this sale an important milestone in the company's bid to put its regulatory challenges behind it.

Now what
A well-run, disciplined company can establish a nicely profitable franchise in this sector. This latest transaction by Nationstar appears to be consistent with that goal. There is a reason its shares trade at more than two times book value while one of its competitors, Home Loan Servicing Solutions , has just agreed to be acquired at a price-to-book ratio of one.

Continue Reading Below

The article Why Shares of Nationstar Mortgage Holdings Popped originally appeared on Fool.com.

Alex Dumortier, CFA has no position in any stocks mentioned. The Motley Fool recommends Ocwen Financial. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.