(OCN/ASPS) Ocwen gets into trouble with yet another regulator

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

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(OCN/ASPS) Ocwen settles with the NY DFS, Erbey steps down

Ocwen has reached a settlement with the NY DFS on onerous terms.  Highlights are:

1. Bill (William) Erbey steps down from every single company in his empire (OCN, ASPS, AAMC, HLSS, RESI).  It’s unclear to me whether he decided to join his wife in retirement or whether he was forced out.  I suspect that it is more of the former than the latter.
2. Ocwen will eventually be able to buy more MSRs though it does not look like this will happen in the short term.  Firstly, NY DFS must appoint an Operations Monitor.  Then, the Operations Monitor will develop a set of benchmarks to measure Ocwen’s capability in boarding new MSR portfolios.  Once Ocwen can demonstrate that it can meet all of the benchmarks, Ocwen will be able to board new MSR portfolios.  Future servicing transfers are conditional on the NY DFS’ approval.  Its approval is “not to be unreasonably withheld” according to the consent order.
3. The cost of servicing will go up due to more regulations.  For example, Ocwen must provide credit reports to borrowers in New York state if their credit was negatively impacted by Ocwen “regardless of whether such borrower’s loan is still serviced by Ocwen”.

Altisource and being greedy when others are fearful

Let me clarify how I feel about Altisource… I am extremely bullish on it.  It has everything I want in an investment:

1. Wonderful economics.  Historical growth over 30%/year with very high high returns on capital.
2. Low valuation.  P/E less than 10.  As a bonus, Altisource has gone crazy buying back shares after the share price fell.  It has bought back more than its free cash flow.
3. Talented management (see #1).
4. Ethical management.

In general, I always try to look at both sides of an argument.  To figure out if I am right about something, I try to prove myself wrong (e.g. to figure out the short thesis and to consider it).  That being said, I think that the fears over Altisource have been overdone.

Is now the time to be greedy when others are fearful?  I don’t like being promotional on this blog but I will say that I have been buying more Altisource.

Risks to Ocwen and Altisource

I apologize for the high volume of Altisource posts.  Altisource is by far my biggest position so I need to make sure that I’m not goofing this one up (especially because I have been doubling down on Altisource).

As far as the risks go:

•  Ocwen’s future earnings will likely be hurt as I do not see it taking kickbacks on force-placed insurance.
• Regulation can theoretically be very ugly for Ocwen and Altisource.
• Declining delinquencies could slow or reverse growth at either company.

Are mortgage servicers evil?

This post will take a look at situations where mortgage servicers screw up and why they screw up.  I’ll let you decide whether or not they are “evil” and whether or not they deserve their bad press and regulatory attention.

Misconceptions about Ocwen and Altisource

This year, both Ocwen and Altisource’s share prices have gone down roughly two thirds.  I think that some of the fears regarding these stocks are based on misconceptions.

(ASPS/OCN) Kickbacks on force-placed insurance revisited

This is a follow-up to my previous post.  I suspect that the EPS decrease from Altisource shutting down its lender placed insurance brokerage business is largely not recurring and is more like a one-time charge.  If the EPS hit is one-time, it would mean that Altisource’s franchise is largely unaffected.