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Home » Store » Servicing » Speculators Buying Ocwen-Serviced Subprime MBS With an Ulterior Motive

Speculators Buying Ocwen-Serviced Subprime MBS With an Ulterior Motive

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Servicing

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One popular strategy among investors trying to profit from the woes of Ocwen Financial is to purchase subprime MBS tranches being serviced by the company and then declare a “material breach” in its servicing covenants. Speculators have been doing this while selling short Ocwen’s stock. According to analysts and investors familiar with the strategy – which is being employed by a fund called BlueMountain (and others) – subprime tranches can be bought at deep discounts. A material breach can occur when a rating agency downgrades the servicer, in this case Ocwen. For several weeks in January and February when Ocwen’s shares were plunging to new lows, it appeared...
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