Ocwen Financial can’t seem to catch a break.
New York regulator Benjamin Lawsky raised fresh concerns about potential "self-dealing" by Ocwen with affiliated businesses that critics say try to capture real estate commissions and charge additional fees to homebuyers.
Structured finance pros follow the company because it has been an active securitizer of mortgage service advance reimbursements in the past couple of years. And in February, Ocwen issued $123.5-million in notes tied to the fees it earns from managing government-backed loans.
Lawsky sent a letter Monday to Timothy Hayes, Ocwen's general counsel in West Palm Beach, Fla., questioning the servicer's relationship with Altisource Portfolio Solutions, a Luxembourg-based distressed property manager, and its online auction site Hubzu.
Altisource has an eight-year agreement to manage distressed and repossessed homes in Ocwen's $435 billion servicing portfolio. It requires that properties be listed and marketed through Hubzu, even if a distressed borrower has already signed a contract for a short sale. William Erbey, Ocwen's executive chairman, owns or controls 26% of Altisource's stock and 13% of Ocwen's.
Lawsky, the superintendent of New York's Department of Financial Services, says he is concerned that Hubzu charges inflated fees "through conflicted business relationships" at the expense of mortgage investors and strapped homeowners. Altisource says that is not true, though it recently changed its fee structure in February and now charges a homebuyer's "premium" instead of taking a cut of real estate agent commissions.
"These higher fees, of course, ultimately get passed on to the investors and struggling borrowers," Lawsky wrote in the letter to Ocwen.
Ocwen said it received Lawsky's letter, and plans to "fully address the questions raised" by April 28.
Two months ago, Lawsky created havoc in the mortgage servicing industry when Ocwen put an indefinite hold on a $2.7 billion purchase of a mortgage servicing portfolio from Wells Fargo. Ocwen did so at Lawsky's request, because he feared the nonbank servicer has grown too quickly.
Lawsky has said previously that Erbey's stake in Altisource "raises the possibility that management has the opportunity and incentive to make decisions concerning Ocwen that are intended to benefit the share price of affiliated companies, resulting in harm to borrowers, mortgage investors or Ocwen shareholders."
The dispute over Altisource's role in sales of distressed properties has been going on for a few years. Real estate agents have long grumbled online at Ocwen for intruding in the short sale process and trying to take a piece of their commissions.
This is not the only headache facing the company right now.
On the securitization the front, the company has had to contend with having Standard & Poor’s place tranches of its securitization on CreditWatch Negative earlier this month.
The action was taken after the agency applied its “imputed promise” criteria. “RMBS ratings will now incorporate subordinated interest distribution amounts as part of the credit-based and measurable promise, provided the failure to pay those amounts will lead to an event of default,” the agency said in a release.