An Atlanta company that is one of the nation’s largest so-called mortgage servicers is retrenching in the wake of a settlement with New York regulators that restricts its ability to generate new business.
Ocwen Financial Corp. has been hit by a barrage of challenges in the last two years, including a $2 billion settlement in 2013 of federal and state regulators’ allegations that it mishandled many homeowners’ troubled loans.
The toughest blow came in late December, when the embattled company reached a separate settlement with the New York Department of Financial Services in which it agreed to get the agency’s approval before taking on new mortgage servicing business. The deal also required Ocwen to pay a $150 million cash settlement and it forced Bill Erbey, Ocwen’s chairman and largest shareholder to resign from the firm last month.
Since the latest settlement, Ocwen’s market value has dropped about 60 percent. It warned that it will lose money in 2014 due to the settlement. Meanwhile, the company has been hit with client and investor lawsuits and credit rating downgrades that could allow more clients to take away more business.
Mortgage portfolio owners can be leery of doing business with mortgage servicers that are hit by such downgrades because the servicers collect homeowners’ payments and hold them for a time before forwarding them to the owners.
Ocwen also said it will begin shedding a big chunk of its business — handling mortgages backed by Fannie Mae, Freddie Mac and Ginnie Mae — to shrink the firm to a more manageable size. Those agency-backed mortgages account for about half of Ocwen’s servicing business.
“It will be a much smaller company going forward,” Bose George, an investment analyst with Keefe Bruyette & Woods in New York, said of Ocwen. “In terms of what they do going forward, it looks a bit unclear.”
Ocwen’s retreat means that millions of homeowners will likely be dealing with new mortgage servicers, for better or worse.
Many homeowners and federal and state regulators have accused Ocwen of abusive debt collection practices. But Ocwen said it has been slower to foreclose on delinquent homeowners than other players in the industry.
The retreat of a big mortgage servicer also could add more confusion for homeowners, many of them still recovering from the mortgage meltdown that flooded Atlanta and other markets with foreclosures and sent home values plunging.
Reassuring stakeholders
“We’re always concerned when there’s disruption in the financial services industry,” said Chris Honenberger, president of ClearPoint Consumer Counseling in Atlanta.
A spokeswoman for Ocwen declined to speak on the record to the Atlanta Journal-Constitution.
In an unusual nine-page filing earlier this month, Ocwen President Ronald Feris apparently sought to reassure shareholders, customers, employees and other stakeholders of the company’s ability to survive.
He said Ocwen has $249 million in cash on hand and “sufficient liquidity going forward.” The firm is hiring financial advisers to help negotiate with lenders for more breathing room on debt that comes due later this year.
“We are focused both on results and how we achieve those results in a responsible manner,” said Feris. We are committed to a culture of integrity, transparency and accountability. We continue to learn from and improve from the challenges we have faced.”
Ocwen’s letter indicated that “things hadn’t gotten any worse,” said George, the Keefe Bruyette analyst. “It looks like they are positioned to get through this.”
Still, Ocwen seems destined to shrink for at least the next year or two, he said, as it sells parts of its business and can no longer bring in new mortgages to service without the New York regulator’s approval. “That’s clearly not going to happen any time soon,” he said.
It’s a dramatic reversal of fortune for Ocwen.
The little-known firm had a spectacular rise in recent years by specializing in collecting payments on so-called “subprime” mortgages and handling tougher chores, such as foreclosures, on behalf of the lenders and investors that own the loans.
That business was particularly hot after the 2008-2010 real estate crash. Ocwen’s revenues more than quadrupled from 2008 to 2013, and its stock price shot up about 1,500 percent.
‘Systematic misconduct’
But Ocwen’s fortunes fell in 2013 after the federal Consumer Financial Protection Bureau and 49 states, including Georgia, accused the company of “systematic misconduct.” In its settlement with those regulators, Ocwen didn’t admit guilt but agreed to provide more than $2 billion in loan relief and cash payments to affected borrowers.
That sent Ocwen’s stock price plunging from its $60-plus high in 2013. The stock price kept falling after the settlement with New York. Last week, Ocwen’s shares were trading around $8.50 a share.
In its separate probe, New York’s financial regulator investigated allegations that Ocwen had sent thousands of backdated letters to homeowners that caused them to think they had missed opportunities to lower their loan payments and avoid foreclosure.
Ocwen apologized for the erroneous letters. It said the errors resulted as it struggled during its fast growth to fix shortcomings in its systems for handling and updating homeowners’ files. In some cases, homeowners complained, those errors caused the company to foreclosure on them even when they were keeping up on their mortgage payments or had already gotten loan-modification agreements from previous mortgage servicers.
As part of its settlement with New York, Ocwen agreed to outside monitoring of its operations and its efforts to fix its information system errors and other problems. The monitor is also charged with recommending when Ocwen is ready to accept new mortgage servicing business.
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