Ocwen provides disappointing company update

Today, Ocwen provided a company update for its shareholders.  While the stock is up ~14% on the news, I am disappointed with how the current CEO is running the company.

1. The update doesn’t seem to mention anything about buying back debt, which currently has fairly high yields (12-13%).  To me, this seems like an obvious move to make.  Where else might Ocwen get such high returns on capital with little risk?
2. The company has halted its share repurchase program.
3. The company intends “hire two financial advisors with significant experience in asset backed financing, capital markets, corporate and mortgage finance”.  I’m not a fan of companies that piss away money on overpriced labour.  Ocwen previously gave its CFO a raise in Dec 2014 but apparently he’s not good enough at his job that Ocwen now needs to hire outside talent.

So far, it seems that the new CEO is bad at capital allocation and bad at maintaining Ocwen’s status as a low-cost operator.

EDIT (2/6/2015): The update also indicated that the company may not be in full compliance with the CFPB metrics:

On the National Mortgage Settlement front, although we do not have the final results of the retesting of certain 2014 metrics by the National Monitor overseeing compliance, we do expect that, similar to many other Servicers in 2014, we will have metrics that will require remediation through corrective action plans as defined by the settlement.

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The mortgage servicing game

This lengthy post covers different ways in which mortgage servicers can get ahead.

Ocwen’s issues with the California DBO might turn into a witchhunt?

The consent order is now up on the DBO’s website (PDF).  The original issue seemed to be that the DBO requested information on 10 + 1200 + 120 loan files and did not feel that Ocwen fully complied with its request.  The consent order now dictates that an auditor will look into many aspects of Ocwen’s business including “the adequacy of Ocwen’s staffing levels” and “staff training”.  It seems to me that the DBO has decided to change the rules on Ocwen.

Erbey complex update part 2: Lawsuit against Ocwen, BlueMountain goes after HLSS

1. BlueMountain owns HLSS debt.  It argues that the debt should get a 3% interest rate increase because there has been Events of Default under the terms of the debt.  Here is their press release.  Currently it has sent a letter to the trustee.  Presumably a lawsuit may follow unless the trustee address their claims.
2. RMBS investors are unhappy with Ocwen and the RMBS trustees because they don’t think Ocwen is doing a good job as the servicer.  (Press release.)

Erbey complex update: California DBO settlement

I’m not sure what the issue with the California DBO was.  The DBO needed information from Ocwen to figure out whether or not Ocwen was following California mortgage laws (California has mortgage laws that are very pro-consumer).  Ocwen seems to have attempted to provide all of the information requested.  They were late in doing so and the DBO was unsatisfied with the completeness of the information given to them.  It is unclear to me whether or not there are issues with Ocwen’s IT systems (or the implementation thereof) that is causing problems.

With the $2.5M settlement announced today, Ocwen has agreed to yet another monitor (PDF press release).  Presumably, this monitor will be able to figure out whether or not Ocwen is compliant with California mortgage laws.  I guess we’ll have to stay tuned for the results.

The Altisource thesis revisited

Originally, my thesis for Altisource was that regulation wouldn’t be so bad because they would create long-term barriers to entry.  I was wrong.  I did not forsee:

1. The NY DFS blocking Ocwen from buying MSRs.
2. Bill Erbey being forced out of all of his companies.
3. The California DBO threatening to suspend Ocwen’s mortgage license.

ASPS conference call

You can listen to the call and download the presentation slides from the IR website.  The whole Erbey complex is rallying presumably because investors realize that the sky isn’t falling down.  Highlights:

1. Altisource guided down earnings for 2015.  Adjusted earnings may drop around 16%.  EDIT(1/21/2015): Adjusted earnings may drop around 26.5% without share repurchases.
2. Altisource purchased very few shares in Q4.
3. Whether or not the profits from the lender-placed insurance brokerage business was recurring is unclear to me.
4. Management sees the chance of the DBO revoking Ocwen’s license (and forcing MSR sales) to be very low.
5. The company does not see Altisource’s services being repriced lower due to the NY DFS.  It believes that its services are at fair market rates.
6. There was some drama.  Lee Cooperman of Omega Advisors hopped on the call to express his displeasure at the company buying back shares at high prices and not buying back shares at low prices.
7. Altisource has fired some of its employees and seems to have exited some areas which are not currently generating revenue.