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.)

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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.

(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

Year in review 2014

In 2013, Altisource was the best performing long position in my portfolio.  In 2014, I unfortunately made it the largest position in my portfolio.  Because of that, I am badly lagging the market.

(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”.