Benjamin Lawsky, head of New York’s Department of Financial Services, is looking into the nation’s fourth-largest mortgage servicing company for conflicts of interest. It’s another blow to the image of the industry.
Michael Corkery had this story in the New York Times:
New York State’s top banking regulator said he had new concerns about Ocwen Financial, one of the nation’s largest mortgage servicing companies, creating another regulatory headache for the company.
In a letter to Ocwen released on Wednesday, Benjamin M. Lawsky, supervisor of the state’s Department of Financial Services, said his office had found a “number of potential conflicts of interest” between Ocwen and other public companies with which it has relationships.
Ocwen, which is based in Atlanta, is the brainchild of William C. Erbey and has grown in recent years into a major player in the mortgage industry. Inside Mortgage Finance said Ocwen services 2.3 million home loans.
Mr. Lawsky said he was concerned that potential conflicts between Ocwen and four other publicly traded companies of which Mr. Erbey is chairman could “harm borrowers and push homeowners unduly in foreclosure.” For example, Mr. Lawsky said Ocwen’s chief risk officer also was the chief risk officer of another of the companies, called Altisource Portfolio Solutions, “and reported directly to Mr. Erbey in both capacities.”
Mr. Lawsky said the chief risk officer, who has since been removed from his duties at Altisource Portfolio, “seemed not to appreciate the potential conflicts of interest posed by this dual role, which is particularly alarming given his role.”
The Financial Times reported that Ocwen disclosed the relationships in regulatory filings, which it feels is sufficient:
DFS said his interest in such businesses “raises the possibility that management has the opportunity and incentive to make decisions concerning Ocwen that are intended to benefit the share price of affiliated companies, resulting in harm to borrowers, mortgage investors, or Ocwen shareholders as a result”.
Ocwen said, “These agreements are fully disclosed in our public filings, and we believe them to be on an arms-length basis. We look forward to addressing the matters raised by NY DFS and will fully co-operate.”
Ocwen has expanded rapidly in recent years as it snapped up billions of dollars worth of assets that give the company the right to collect payments on thousands of American home loans. In 2009, it spun off Altisource, which in addition to providing mortgage servicing, also stands to profit by selling and renting homes that have been foreclosed on.
The servicing firm’s practices have been under growing regulatory scrutiny. This month, DFS halted indefinitely Ocwen’s purchase of servicing rights from Wells Fargo, citing concerns about its ability to handle the increased servicing.
In December, Ocwen agreed to provide $2bn in loan modifications to homeowners to settle with the Consumer Financial Protection Bureau, which said it found years of “significant and systemic misconduct that occurred at every stage of the mortgage servicing process” including foreclosures.
Housing Wire’s Trey Garrison added the background that Lawsky (whose name he spells wrong below) is concerned about the company’s ability to service mortgages, which prompted Lawsky to halt a $2.7 billion servicing deal with Wells Fargo:
In addition to information on Ocwen’s officers, directors and employees, Lawskey’s office wants all documents sufficient to show the nature and extent of services provided to Ocwen by each of the affiliated companies, including all agreements for such services, and copies of all agreements between Ocwen and the affiliated companies concerning procurement of third party services. Ocwen is also being probed about its agreements concerning the outsourcing of information management to the affiliated companies.
Regarding the Ocwen/Wells Fargo deal, the DFS says it is concerned about Ocwen’s ability to handle Wells Fargo’s portfolio of mortgage servicing rights, a deal that was announced last month and which would have given Ocwen the right to service some $39 billion in mortgages.
Wells Fargo’s portfolio of residential mortgage servicing rights holds roughly 184,000 loans linked to the transaction. The portfolio represents approximately 2% of the banks total residential servicing portfolio.
While this story might seem small, it’s yet another black mark on the mortgage industry, which has suffered since the crisis. Investors have turned to servicers in the anticipation that housing will post gains and this is an area that will help show some type of returns. But it seems that they may have to look for those, especially if litigation becomes a bigger risk or regulators are putting a stop to deals.
