Monetizing Mortgage Servicing Rights

Reminiscences of a Stockblogger had a great piece on mortgage servicing rights (MSRs) as one of the most compelling assets to buy in the market now (more so back in March).

The most compelling part arguments I see are: 1) regulatory concerns that have reduced competition in the industry and 2) the unique nature with respect to prepayments that make their payouts sustainable. 

1) Basel III regulations have made holding mortgage servicing rights (that is, the 25-50 bps of income in return from servicing the mortgage/unpaid principal balances) uneconomical for traditional banks. They have therefore been selling these rights en masse to companies such as NSM and OCN.

2) MSRs are dependent on people not selling their houses, people not refinancing, and people not defaulting.

But how best to monetize this? The most volatile names include NSM and has obviously done well.

But I'd like to point to more indirect but possibly more lucrative company that combines the above advantages with 3) a highly consistently profitable and high roa/roe business (pre and post crash),

 4) a (main) customer which has the capabilities to buy up these rights, even possibly getting involved in the ResCap deal.

and 5) repeated insider buying at 52-week highs.

The company is Altisource Portfolio Solutions S.A. (NASDAQ: ASPS), a spinoff from OCN which has a guaranteed 7-year contract with OCN to provide the key technologies/services necessary to service OCN's loans.

Careful investing,
-Stanley

*Disclosure: I am long ASPS