Thursday was another day of high volatility on Wall Street, with the major indices declining further. The NASDAQ Composite (^IXIC) led the way by shedding 1.48% and closing at 4,570.82.

It wasn’t all doom on the NASDAQ, however, as Ocwen Financial (OCN) bucked the downtrend by soaring more than 11% on sharply higher volume.

Shares of the Atlanta-based mortgage loan originator and servicer closed the trading day at $7.77, an increase of $0.77 over Wednesday’s close.

Trading volume for the troubled finance company was heavy, with more than 22.7 million shares exchanging hands. Compare that to the company’s 30-day average trading volume of roughly 5.5 million shares.

Igniting the rally in Ocwen shares was news that hedge fund manager Robert Chapman started buying OCN shares and call options late Tuesday. The hedge fund increased its position on Wednesday.

As you can see from the chart below, shares of OCN have been steadily declining for the last three years… but the descent accelerated recently based on significant regulatory concerns about the nation’s largest servicer of delinquent mortgages.

The company ran afoul of regulators in New York state over its business practices, which ultimately led to the resignation of its Co-Founder and CEO, Bill Erbey.

On top of that, investors received news this week that California wants to suspend the company’s mortgage license because it didn’t produce documents proving its compliance with California foreclosure law.

Incredibly, in a statement to Bloomberg, Chapman asserted his belief that “Ocwen could easily double in price from here.”

And frankly, that’s a bold statement for a company whose financial performance is being hurt by ongoing compliance troubles.

Q3 2014 Financial Results…

The company’s Q3 2014 report showed some areas of strength, while also showing significant weakness in others.

Total revenue in the third quarter was $513.7 million, a modest decline of 3.2% over the $531.2 million reported in the same quarter a year earlier.

But while the company reported less revenue, OCN’s net operating cash flow indicates that the company is generating sufficient cash flow to grow its operation. Net operating cash flow increased to $348.9 million, or 143.3% higher than Q3 2013.

The same can’t be said about net income, though, which saw a whopping decline of 224.4%, falling from $60.57 million to -$75.38 million.

And consistent with the net income performance, Ocwen’s earnings per share are down 248.7%, compared to the same quarter in 2013.

Still, a Compelling Case for Investors Can Be Made…

Clearly, the company is depressed and investor sentiment is poor, with short interest sky-high at 18.1%.

But, it’s important to remember the company has a run-off value of up to $12.50 per share, which is the value of Ocwen shares if the company writes no new mortgage servicing rights (MSR) and simply operates under its existing contracts.

Of course, that won’t be the case…

Management previewed its strategy for 2015 in a conference call in which the company said it will focus its future servicing business primarily on the non-agency sector of the market.

This means the company will unload approximately $1.5 billion to $1.6 billion in agency MSRs, equating to gains of $400 million to $500 million in the near future.

This leaves the company with nearly $2 billion to invest in non-agency MSRs, which will simplify its operations and accelerate returns.

The strategy also reduces Ocwen’s risk exposures to changes in interest rates and prepayment speeds.

And this makes Ocwen a stock that every investor should have on its radar.

But be forewarned, it will be a bumpy ride for the next two quarters…

Good Investing,

Richard Robinson