Ocwen/Altisource update and links

Lately, the share prices of OCN and ASPS have dropped around a third since the beginning of the year.  This is presumably due to the negative press coverage that Ocwen has been receiving due to its regulatory problems.

  1. Ocwen reached a settlement with the Consumer Financial Protection Bureau (CFPB), authorities in 49 states, and the District of Columbia.  Many articles in the media have reported that the settlement amount was $2.125B ($2B in principal reductions to homeowners and $125M in cash).  This is misleading.  Ocwen likely would have provided at least $2B in principal reductions anyways without the settlement.  As for the cash settlement, Ocwen only pays part of it.
  2. Wells Fargo’s sale of MSRs to Ocwen has been blocked by the New York State’s Department of Financial Services (DFS).  (The DFS was not party to the settlement mentioned above.)
  3. The press has reported speculation that MBS investors might sue Ocwen.  I believe that this is misleading because such lawsuits would be silly.  While the contracts that structure securitizations have problems, Ocwen has not breached their contractual obligations.  As a servicer, Ocwen is allowed to modify mortgages and to reduce the principal on mortgages.  When it comes to principal reductions, Ocwen’s incentives are aligned with investors.

I think that investors have overreacted to news surrounding Ocwen.  To me, it seems that its settlement really isn’t all that bad.  One article states:

In fact, the Ocwen agreement prompted one broker to write, “I’d call that a victory for Ocwen, the servicer. You lie to borrowers to get them out of the house and then you have to pay them about $1,100 each. Heck BofA was paying borrowers up to $5k alone for moving expenses.”

Ocwen will have real costs in complying with terms of the settlement that relate to increasing its servicing quality.  However, it will be on similar footing to the big banks that agreed to settlements in the past.  To some degree, being targeted by regulators is a good problem to have.  Large companies are more frequently targeted  as regulators can easily portray them as giant, evil corporations.  As well, settlement figures tend to be proportional to the company’s size.  Both these factors make regulators look good in the political arena (and I’m of the opinion that regulators are largely driven by politics rather than creating value for society).  I believe that the benefits of size outweigh the disadvantages in the servicing field.  While Ocwen is not currently the largest mortgage servicer, it seems likely that it will soon become the #1 or #2 player.  The top spots are held by banks that are looking to sell off their MSRs as the coming BASEL III regulations will require the banks to hold more capital against MSRs.  I believe that OCN and NSM will likely take the top two spots.

Both Ocwen and Altisource have been buying back shares even though they knew about their regulatory issues.  I expect Ocwen and Altisource to continue buying back shares.

Servicing quality

Depending on the source, Ocwen is generally considered to be average or above average.

Moody’s:  SQ2- according to Jan 22 2014 press release.  “Moody’s SQ assessments represent its view of a servicer’s ability to prevent or mitigate asset pool losses across changing markets. The assessment scale ranges from SQ1 (strong) to SQ5 (weak). Where appropriate, a “+” or “-” modifier will be appended to the relevant assessment to indicate a servicer’s relative servicing quality within a particular category.”

Standard and Poor’s:  Average according to Jan 2014 press release.

Fannie Mae:  In the top tier according to their press release on STAR program results.  (*Fannie Mae internally ranks mortgage servicers based on their servicing quality.  The best servicers only achieve 3 stars out of 5.  NSM, OCN, and WFC are in the top tier.)

Links

Ocwen conference call transcript (Seeking Alpha).  In particular, the CEO addresses issues about Ocwen raised in the press.

William O’Neil report on mortgage servicers (OCN, NSM).

(Naked Capitalism blog) New York’s Benjamin Lawsky Rattling Banks With Currency, Servicing Probes – The blog has an anti-capitalism bias but it’s good to look at alternative viewpoints.

Lawsuits: Ocwen/CFPB Case Settled; Major Buyback Ruling in Favor of lenders; MBA Rolls Out QM Guide – Scroll down for commentary on the Ocwen settlement.

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4 thoughts on “Ocwen/Altisource update and links

      • Yeah – different peer groups according to the methodology I believe. In 2012 fifth third was in “peer group 2” which included some other large regional banks. “Peer group 1” included everbank, rescap/gmac, green tree (WAC), NSM, PHH, Seterus, and Wells Fargo. Suggests the credit sensitive Servicer/non-bank rankings are based on a different methodology than performing bank Servicers. You have a view on how much variance there is in the incentive fees that Fannie pays Servicers for relative performance vs. others in their peer group? All else equal it seems WAC has more incentive fees per loan ccoming their way on Fannie servicing which is 85%.

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