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!