Erbey’s empire of publicly traded companies (OCN, ASPS, HLSS, AAMC, RESI) is a little confusing. Here’s my understanding of what his companies do.
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altisource ASPS
Altisource recap
This is just my opinion, but I think that Altisource is pretty cheap despite being one of the fastest growing stocks around. Here are the company’s historical earnings per share (diluted):
2008: $0.38
2009: $1.07
2010: $1.88
2011: $2.77
2012: $4.43
2013: $5.19
Trailing twelve months: $6.69
Despite this incredible growth, the current TTM P/E is 12.8.
(Ocwen/Altisource) Force-placed insurance
Altisource’s share price fell dramatically today following a letter by Benjamin Lawsky to Ocwen (PDF link) that finds problems with a practice called force-placed insurance. Normally, lenders will require the homeowner to pay for hazard/property insurance. Part of each mortgage payment goes into an escrow account that pays for insurance and property taxes. However, there are some rare cases where the borrower pays hazard/property insurance separately. Perhaps they already had insurance before getting a HELOC. Or, they wish to exercise their right to choose their own insurance provider. In those situations, a borrower who has run into financial difficulties may stop paying their hazard/property insurance because they have more important expenses to pay. This exposes both the lender and the borrower to the risk of catastrophic damage to the home. Mortgage contracts generally allow the mortgage servicer to obtain hazard/property insurance elsewhere on behalf of the borrower.
There are two issues with force-placed insurance:
- It’s almost always significantly more expensive than the original hazard/property insurance policy.
- The mortgage servicer can take kickbacks/commissions from the insurance company.
March 2014 portfolio update: Feeling the squeeze…
Unfortunately, I’ve had a bad start in 2014. My long positions and my short positions are moving against me. I suppose that this is bound to happen because stocks are never perfectly correlated. (If they were perfectly correlated then there would be no point in trying to pick stocks or to profit from short selling.)
While I have a large number of short positions (30+), I have managed to find many stocks (mainly Chinese and solar stocks) that have quickly moved against me.
Ocwen/Altisource update and links
Lately, the share prices of OCN and ASPS have dropped around a third since the beginning of the year. This is presumably due to the negative press coverage that Ocwen has been receiving due to its regulatory problems.
- Ocwen reached a settlement with the Consumer Financial Protection Bureau (CFPB), authorities in 49 states, and the District of Columbia. Many articles in the media have reported that the settlement amount was $2.125B ($2B in principal reductions to homeowners and $125M in cash). This is misleading. Ocwen likely would have provided at least $2B in principal reductions anyways without the settlement. As for the cash settlement, Ocwen only pays part of it.
- Wells Fargo’s sale of MSRs to Ocwen has been blocked by the New York State’s Department of Financial Services (DFS). (The DFS was not party to the settlement mentioned above.)
- The press has reported speculation that MBS investors might sue Ocwen. I believe that this is misleading because such lawsuits would be silly. While the contracts that structure securitizations have problems, Ocwen has not breached their contractual obligations. As a servicer, Ocwen is allowed to modify mortgages and to reduce the principal on mortgages. When it comes to principal reductions, Ocwen’s incentives are aligned with investors.
(Altisource/Ocwen) Mortgage servicing rights overview
Lately, Ocwen has been receiving a lot of bad press due to its problems with regulators. Both Ocwen and Altisource have seen their share prices tank. I think that the selloffs are overdone. If anything Ocwen should have sold off worse than Altisource.
Here’s my take on the situation.
Altisource / Convincing ex-homeowners to leave
Altisource has uploaded its Analyst and Investor Event presentation slides to its website. The most interesting presentation is on “Innovations in Consumer Analytics” (PDF).
