Continuing on mortgage servicing rights (HLSS $19.39)

We now aim to replicate the success of ASPS with Home Loan Solutions, Ltd. (HLSS), an income vehicle for buying mortgage servicing rights (MSRs)  - I believe this is the quintessential dividend growth vehicle for at least the next year or two.

Summary (Recommendation: Buy with 1-year target of $38)

Home Loan Servicing Solutions, Ltd. (NASDAQ: HLSS) is the next iteration of the unique opportunity in mortgage servicing rights. After a 1000% 3-year return in his previous spinoff (NASDAQ:ASPS), I believe that William Erbey, the Chairman of both companies will replicate this success with HLSS as a dividend growth company. To review:

• Mortgage servicing rights are cheap because regulation and political risk have forced noneconomic selling and less competition

• At the same time, market conditions in prepayments and interest rates make such rights very valuable

• HLSS is in a prime position to exploit such a dynamic and based our calculations, is valued at only 7x 2013 forward earnings   

• Finally, consistently profitable outright insider buying by Chairman

Will detail in later posts.

-Stanley

*Disclosure: Long HLSS