Ocwen’s Abominable Deal With New York
Ocwen Financial’s agreement yesterday with Benjamin Lawsky’s New York Department of Financial Services isn’t so much a settlement with the agency as it is a company takeover by it. If you doubt it, consider these details:
- Chairman Bill Erbey will resign from the company and have no further role in running it.
- Ocwen will install a DFS-selected monitor that, for the next three years, will have oversight over everything the company does, from IT spending and plans, to contracts with third parties, to fees charged borrowers.
- The monitor will also name two additional directors to Ocwen’s board and control how the board is structured.
- Ocwen can’t make any acquisitions without the state’s approval.
- Ocwen will pay $150 million in homeowner assistance, including $10,000 to every New York state borrower it’s foreclosed on.
- Ocwen must turn over full loan files, including comments and related emails by company officials, to borrowers and former borrowers.
- None of this shields Ocwen from paying additional restitution to injured borrowers.
This is beyond unfair, and an absolute outrage. First, Ocwen has already come to terms with regulators over these same purported misdeeds (which essentially amount to clerical errors brought on by the crush of paperwork related to the foreclosure crisis) via its 2013 settlement with 49 states attorneys general (including New York’s!). That deal cost Ocwen $2.1 billion. Since then, all data shows that Ocwen has done an outstanding job complying with the agreement’s requirements. Why Ocwen should be punished a second time for these same actions is beyond me.
Meanwhile, among mortgage servicers, Ocwen ought to be considered one of the good guys. It’s just the fourth-largest mortgage servicer, but as of last fall had completed 44% more loan modifications than any other player. That’s exactly the sort of thing one would think the regulators would want to see happening. And yet for New York’s DFS it’s apparently not enough.
The only reason I can think of that the company accepted this deal is that it concluded that it would be cheaper than the cost of continuing to battle the regulators longer term. Considering how much the company is giving up here, that tells you a lot about the temperament of this particular regulator—and not much of it’s encouraging. For a company Ocwen’s size, dealing with a regulator like New York’s DFS is an unfair match at a certain basic level. The company wants to conduct its business and maximize value for its shareholders, and so prefers to minimize distractions. It can thus be expected reach agreements like this just to save money, even if it believes it’s done nothing wrong. Regulators, meanwhile, have the full power of state behind them, vast resources, and do this sort of thing for a living. I’m not going to speculate about Lawsky’s motivations, but am astonished that he wouldn’t cut a deal from Ocwen that didn’t force the company to essentially hand itself over to the state.
This deal is an abomination. In my 35 years analyzing and investing in financial services companies, I’ve never seen such unfair regulatory excess. The company’s transgressions essentially amounted to clerical errors on a grand scale—things like backdating agreements and miscoding electronic files—for which it has already made amends. Now it has to make amends all over again—and put itself under years of micromanagement by government bureaucrats. The punishment is out of all proportion to the offense. Shareholders will be hurt, Ocwen’s employees will be hurt and, considering Ocwen’s stellar track record already in granting loan mods to delinquent borrowers, I wonder if borrowers won’t end up being hurt, too. A travesty of the highest order!
What do you think? Let me know!
7 Responses to “Ocwen’s Abominable Deal With New York”
OCN does not need a NY banking charter to operate the company. They could simply exit servicing loans in NY State and be untouchable by Lawsky. Given the severity of the punishment (and i agree it is horribly bad), why would they do this when they had a nuclear option? The only rational explanation is that they truly did something wrong, much more than “just clerical mistakes”.
(long term Erbey supporter… can’t come up with any other explanation for what happened)
BTW you forgot to add that the most insulting thing is that given that NY is a judicial state their is a near 0% chance of any wrongful foreclosures… the reality is that foreclosures in that state only occur on people who have been squatting for 5 years+ so giving them $10k is just unreal.
The problem is that Ocwen wants to buy non-agency MSRs with lots of subprime mortgages. Most of the underlying securitizations include mortgages in New York State. Even if they didn’t… the additional workload could theoretically hurt New York borrowers currently being serviced by Ocwen.
Also, some of the mortgage investors who own RMBS are presumably from New York. So the NY DFS may have some technicalities available to it that it can use as an excuse to extort Ocwen.
Well,…it isn’t JPM,.. is it!
I agree with prior comment. There had to be something bigger here for Erbey to walk away from all 5 companies. This is his life work. Check that…this is his life. Also there is no way NSM and WAC are in the clear. The difference is regulators think the concept of low cost non-agency mortgage servicing is an oxymoron. I wonder if Erbey brought this on himself with spinning companies, causing some possible conflicts of interest, having the majority of the workforce overseas, and moving the company to the Virgin Islands for tax purposes.
Tom, once again, a spot on analysis. At some point, someone somewhere has to stop the Obama administration and overzealous state governments from extorting capital from private companies. Where are the Mortgage Bankers Assoc., the US Chamber of Commerce and others chartered to protect the collective interests of business when such unconstitutional travesties occur?
Tom,
I usually love your analysis, but this analysis is foolish. There are only two explanations here:
– Erbey is a fool and agreed to a punishment far worse that he could have received if he had fought. Does anyone really believe this? If so, then the outrage is with Erbey, not the government. I do not believe explanation this for a second, but you seem to believe it completely.
– The misdeeds here are much worse than those revealed publicly, and Lawsky had Erbey by the short hairs. This strikes me as the much, much more logical explanation. Just because you do not know the misdeeds does not mean they did not happen.
You can turn it into an anti-government screed, but Erbey isn’t some poor, helpless victim. He is a ruthless, amoral business-man that made a decision in his own self-interest. So why did he agree to this?
Check out LPS. They stood and fought the extreme robo-signing penalties and they won.
There seem to be the entire cadre of hedgies that have been long the Ocwen complex that are having a very difficult time coming to reality here. The cognitive bias displayed by the hedgie longs here had been astounding for some time. The longs seem to continue to believe hook, line, and sinker what the company has been saying! Yet, Erbey’s behavior indicates it cannot be the whole story!! What are you going to believe: what the company has said because it confirms your position OR Erbey’s very real behavior in signing the Consent Decree?
I think you are a fool to think that Erbey agreed to this Consent Decree based on the misdeeds revealed thus far.
So save the outrage . . .
How is the outrage with a side of cognitive bias working out?
And sure, they will settle with CA soon, and all will be well . . .
Other than RESI, I am not sure why any piece of the OCN complex has any value.
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