A High-Yield Mortgage Play Without Mortgage Risk

The small-cap arena is where you are most likely to find stocks that deliver multiples of return, since it’s the small companies that grow to become the behemoths. Rarely, however, do you find a small-cap stock that offers a huge dividend. Even more rare is the small cap that offers a huge yield that is involved in the mortgage arena, but is not a mortgage real estate investment trust, or mREIT. Home Loan Servicing Solutions (HLSS) is a Cayman Islands-based mortgage servicing operation. The company purchases mortgage servicing assets, which are non-agency mortgage servicing advances, rights to non-agency mortgage servicing rights and cash reserves.

Source: GrabPress Media

HLSS doesn’t originate mortgages, nor does it have its own servicing platform. Instead, it buys the servicing rights and partners with Ocwen Financial (OCN) to do the actual servicing. The business itself is a good one. HLSS has limited credit and valuation risk from its asset base, which has grown at a compound annual growth rate of 85% since the company went public in late 2012. It has rights to well over $100 billion worth of mortgages and has a solid and reliable revenue stream from the servicing fees it earns. Plus, it picks up some interest on a small portfolio of FHA-insured assets.