Benjamin Lawsky has gone after Ocwen looking for wrongdoing. So far it seems that he has found very little. Here are some of the claims that he has made:
- Ocwen’s rapid growth has hurt its ability to maintain the same servicing quality. A press release on the NY DFS’s website (May 20, 2014) essentially makes these claims about Ocwen without naming the company specifically. (But it’s pretty obvious that he is implying Ocwen with the reference to 70% lower costs.)
- Ocwen is potentially harming homeowners or MBS investors due to the conflicts of interest between Bill Erbey’s publicly traded companies. See the February 26, 2014 letter (this Housingwire article provides some background).
- Ocwen may be harming homeowners (and MBS investors) by taking kickbacks on force-placed insurance. Housingwire has an Aug 2014 article that provides some context.
- Ocwen has “backdated” some of the letters it has sent homeowners, potentially hurting their ability to stay in their home with a loan modification. Here is a copy of their letter dated October 21, 2014: 243853685-Lawsky-Ocwen-Letter
It seems to me that nothing has come out of his previous claims. I’m actually surprised that nothing came out of the force-placed insurance accusations because many mortgage servicers have paid settlements over such practices. Unfortunately I was never able to figure out if Ocwen was guilty or innocent when it comes to taking kickbacks.
Regarding Lawsky’s latest set of claims, Ocwen has issued a press release that tries to clarify the situation:
“Ocwen regrets that, due to software errors in our correspondence systems, we inadvertently sent improperly dated letters to some borrowers. As always, our goal is to avoid foreclosure. In the case of the 283 borrowers in New York who received letters with incorrect dates, 281 are currently borrowers with us. We are continuing to review the rest of the cases. We believe that we have resolved the letter dating issues that have been identified to date, and we continue our investigation as to whether there are additional letter dating issues that need to be resolved. We are working with and fully cooperating with DFS and the Monitor to address their concerns.”
Ocwen says that the backdating was unintentional and due to a flaw with their systems. That 281 of 283 are still borrowers suggest that 281 out of 283 are still in their homes. The remaining 2 borrowers may have lost their homes. It is likely that they would have lost their home anyways though the wrong dates on Ocwen’s letters could have caused them to lose their home unnecessarily. 2 borrowers who may or may not have been hurt by Ocwen’s errors are not a big deal.
Recall that Ocwen has undergone a great deal of scrutiny because the CFPB and NY DFS have installed monitors in the company. If Ocwen has major problems with its loan servicing, these issues likely would have come out by now.
If you look around online, all the major mortgage servicers have generally made far more serious errors. The robosigning controversy is just one of the many mistakes mortgage servicers have made. Robosigning meant that scores of homeowners did not receive due process when they had their homes foreclosed on.
Ocwen later issued a second press release correcting its earlier statement:
“Ocwen wishes to correct its statement in a press release earlier today that 283 borrowers in New York received letters with incorrect dates. Ocwen is aware of additional borrowers in New York who received letters with incorrect dates but does not yet know how many such letters there were. Ocwen is continuing its investigation into these matters. We are working with and fully cooperating with DFS and the Monitor to address their concerns.”
I’m not that bothered by the existence of other letters with incorrect dates. These are not meaningful errors compared to all of the other mistakes Ocwen and other servicers have made.
The bottom line
I think that the stock market has made a mountain out of a molehill. Normally, it is ridiculously easy for a regulator to find wrongdoing. All regulators have to do is to investigate an investment bank, where the participants are highly incentivized to rip off their clients in unethical ways. Instead, he has gone after Ocwen and hasn’t found much wrongdoing.
Nonetheless, Ocwen and the other Bill Erbey companies have seen their share prices fall dramatically. Ocwen is down 61%. Altisource is down 47%. I think that this is a massive overreaction.
What I’m doing
I sold CACC shares and covered some of my shorts to buy more shares of OCN and ASPS. All of the publicly-traded Bill Erbey stocks (OCN, ASPS, RESI, AAMC, HLSS) have traded down today.