Ocwen Financial, the biggest non-bank mortgage servicer in the US, is looking to the capital markets to help propel its future growth and diversify its business away from collecting payments on thousands of subprime home loans.

The company is pitching to investors a $136m bond deal backed by a pool of mortgage servicing rights (MSRs) – assets that give companies the right to collect payments on US home loans in return for a small slice of the income.

The deal, nicknamed “Oasis”, comes as Ocwen is struggling with increased scrutiny from regulators, who say the company has expanded too rapidly in recent years. Ocwen has been snapping up billions of dollars worth of MSRs tied to subprime loans that are now too expensive or troublesome for banks to hold.

While Ocwen estimates that banks still have $1tn worth of MSRs to sell, servicing mortgages has a finite shelf life, and originations of the subprime loans in which the company has historically specialised are unlikely to recover to pre-crisis levels.

That has spurred Ocwen to expand into other lines of business, including buying more MSRs tied to “prime” mortgages, or higher-quality home loans, as well as lending.

The mooted bond deal “will have substantial impact on our ability to not only lower the risk on our existing balance sheet and help us continue to finance future growth, but also long-term, it will support some of the growth we expect in lending and make us more efficient as a buyer of prime assets”, John Britti, Ocwen’s chief financial officer, said at a recent meeting with investors and analysts.

Ocwen said then it was aiming to sell the bonds to fixed income investors including real estate investment trusts (Reits), the tax-friendly investment vehicles.

These investors would get part of Ocwen’s servicing fee and exposure to rising interest rates, while Ocwen would get to offset so-called “prepayment risk” – or the risk that mortgages get paid off early.

That should in theory allow the company to buy more prime MSRs and eventually expand its nascent mortgage origination business in a more efficient way.

“If they can lower or eliminate their prepayment risk and lower the capital cost to hold the asset, the returns become higher and more stable,” said one analyst.

The sale of the bonds, which are not being rated by the credit rating agencies, is being run by Barclays and Morgan Stanley and could price in the coming weeks.

If the sale is successful, Ocwen is expected to launch further MSR financing deals.

“We’re not the best house or home for a prime interest-only asset,” said Mr Britti. “If you’re a mortgage Reit, it’s a much better asset on your balance sheet than it is on ours.”

New York’s Department of Financial Services earlier this month blocked the sale of $2.7bn of MSRs from Wells Fargo to Ocwen, citing concerns about the latter company’s ability to service more loans.

The move follows a $2bn settlement struck in December with the Consumer Financial Protection Bureau, which had accused Ocwen of a litany of administrative errors and deceptive practices that pushed borrowers into foreclosure.

A spokeswoman for Ocwen declined to comment.

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