Hold on a minute. "Turmoil" doesn't really describe what the industry has endured, does it? Four of the ten largest depositories from 2006 have either failed or been sold in government-assisted transactions. Another two are on federal life support. Two of Wall Street's six big investment banks have collapsed, with a third sold in an emergency deal. The private subprime lending business has ceased to exist. The GSEs have been nationalized. The FDIC is on the verge of going broke. And don't even ask the total amount investors have lost via MBS writedowns; my mind can't hold a number that big.

Given all this, "turmoil" doesn't seem quite up to the task of characterizing what's gone on.   

Where was I? Oh, sorry. Despite the turmoil the mortgage-lending industry has been through over the past two years, one subsector of the business hasn't merely avoided the pain everyone else has gone through, it's managed to benefit from it. That subsector is mortgage servicing.

That's right, servicing. No matter how well or poorly a mortgage is underwritten, or how haphazardly it's securitized, somebody still has to open the envelopes, deposit the checks, post the interest, and the rest. Back during the boom, it was all mainly an afterthought to the investment banks that barreled into the business to get in on the securitization boom. No longer. With delinquencies soaring, many lenders' servicing units are bleeding and soaking up cash. The lenders want out. Specialized mortgage servicers, by contrast, have the efficiency and scale to profitably service those delinquent loans. So they find themselves in an enviable spot: they are the only buyers in a market teeming with impatient, agitated sellers. 

All of which is a way-too-long introduction to a company that makes up one of our largest positions: Ocwen Financial Corp (OCN). The Bloomberg says that Ocwen is a "diversified financial services holding company," but that's a little grandiose. Ocwen today is a pure-play mortgage servicer—the only publicly traded one, in fact, that I'm aware of. We like it for three reasons. First, as noted, servicing can be a great business right now for a focused operator that knows what it's doing. Second, Ocwen is the industry's most efficient operator. Finally, the company has access to a substantial amount of low-cost capital that it can use to acquire the vast amounts of mortgage servicing rights that banks and investment banks are suddenly so eager to sell.