California’s DBO (Department of Business Oversight) is going after Ocwen and threatening to take away its license to operate in the state. Since October 2013, the DBO has requested information and documentation from Ocwen. Ocwen has been late in supplying the requested information and did not fully comply with the DBO’s request.
- California seeks to suspend Ocwen’s mortgage license (Reuters article) – “Like any enforcement action, settlement is always a possibility, but at this point we are focused on suspension”
- DBO webpage on Ocwen with links to the DBO’s accusation and orders of forfeiture
- Ocwen press release regarding today’s news
On October 6, 2014 the DBO filed a formal accusation against Ocwen. Since then Ocwen presumably has not been able to fully satisfy the DBO’s requests for information. Today on Jan 13, 2015, the news broke that the DBO would be going after Ocwen’s license to operate in the state. If Ocwen’s license were to be revoked, it would likely do a great deal of harm to Ocwen. Ocwen would be forced to sell MSRs with mortgages in California. I suspect that such a sale would be at extremely depressed prices since there would be a lot of regulatory risk for the buyer (as shown by Ocwen’s problems with the NY DFS).
Presumably Ocwen will do whatever it takes to get in the DBO’s good graces. I don’t know why Ocwen was unable to comply with the DBO’s requests for information. From Ocwen’s issues with the CFPB, it seemed to be the case that there are some issues with Ocwen’s mortgage servicing platform (created by Altisource). Ocwen is currently being re-examined by the CFPB due to issues with the REALServicing platform.
Ocwen’s investor disclosures and transparency
From what I can tell, Ocwen’s 10-Ks and 10-Qs do not make any mention of the company’s issues with the DBO.
They also do not mention that Ocwen and Altisource were involved in force-placed insurance schemes that would expose the companies to regulatory risk. Ocwen’s peers Nationstar (NSM) and Walter (WAC) provide more disclosure of “insurance commissions” and “other fees” from force-placed insurance than Ocwen and Altisource. One could make the argument that Ocwen and Altisource could have been more transparent about their regulatory risks.
At Interactive Brokers, the borrow on ASPS is 29.9% and for OCN it is 1.1%. I do not know why the borrow on ASPS has suddenly become so expensive and why the shorts love this stock so much. I can’t figure out why investor sentiment is so negative on Ocwen and Altisource. I’m not sure why these stocks have been beaten down so much given their historic growth, are currently generating strong cash flow, and have most of their revenues locked in via contracts. The stocks are trading as if the companies are about to go bankrupt or their profitability is about to be devastated by regulation. Those scenarios do not seem likely to me. I don’t understand it so perhaps you can get a better explanation elsewhere.
*Disclosure: Long OCN and ASPS.
EDIT (1/14/2015): A New York Times Dealbook article quotes Ocwen’s public relations contact as saying: “We do not believe anything particular about RealServicing, as a system, caused the issues identified in the report […] Unlike other servicers, Ocwen’s I.R.G. was tasked with testing on two platforms simultaneously – and that complexity may have been challenging for Ocwen’s I.R.G. during the applicable time period.” So, it may not be the case that Altisource’s REALServicing is the problem.