Ocwen Financial, the biggest non-bank servicer of US mortgages, is aiming to sell as much as $1bn of a new type of debt this year to help finance its future growth.

But Ocwen may face an uphill battle to sell the new breed of bonds, which are backed by its mortgage servicing rights, after pricing its first such deal last week amid growing regulatory scrutiny over the company’s rapid expansion.

Investors bought $123.5m of the debt deal, nicknamed “Oasis” – less than the $136m targeted by Ocwen, according to people familiar with the matter.

Some investors were said to have balked at buying the bonds as regulatory criticism of Ocwen and other non-bank mortgage servicers continues to mount.

The day Ocwen priced the Oasis deal, a leading US lawmaker wrote to regulators requesting that they examine the rapid growth of non-bank mortgage servicers which are now responsible for collecting payments on millions of American mortgages.

Non-bank mortgage servicers have in recent years bought hundreds of billions of dollars worth of mortgage servicing rights (MSRs), which give them license to collect payments on US mortgages in exchange for a small portion of the income.

Most of these MSRs have been acquired from large banks which find the mortgage servicing business too troublesome or expensive in the wake of a wave of US foreclosures, the introduction of new financial rules and regulatory pressure.

Ocwen has been planning to sell as much as $1bn of the Oasis bonds this year to help propel its growth and diversify away from collecting payments on subprime loans. A spokeswoman for Ocwen declined to comment.

People familiar with Ocwen’s inaugural Oasis deal said that buyers of the bonds were mostly investors who were comfortable with the company’s strategy. Hedge funds positioning for rising interest rates were also said to be interested.

MSRs tend to rise in value as interest rates increase because the servicing fees have a longer life when borrowers refinance less. By selling the Oasis bonds, Ocwen gets to offset so-called “prepayment risk” – the risk that mortgages get paid off early – and more efficiently finance the underlying MSR assets.

Ocwen worked on the Oasis deal, which required an acknowledgment agreement from the US government’s mortgage financier, Freddie Mac, for more than a year.

“Through the Oasis programme, the company achieves match-funded financing of the related agency MSRs for 14 years and limits its exposure to prepayment volatility,” Ocwen said in a statement accompanying its inaugural deal.

Earlier this month, New York’s Department of Financial Services blocked the sale of $2.7bn of MSRs from Wells Fargo to Ocwen, citing concerns over the latter company’s ability to service more loans. The move followed a $2bn settlement over mortgage servicing practices between Ocwen and the Consumer Financial Protection Bureau.

Steven Antonakes, deputy director of the CFPB, harshly criticised mortgage servicers in a speech last week, saying he was “deeply disappointed” by the lack of progress the industry has made in how it treats borrowers.

Additional reporting by Gina Chon in Washington

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