Ocwen Financial said today that it has agreed to pay $150 million to New York regulators and homeowners to settle allegations that it fudged foreclosure documents.
In addition, founder and executive chairman William Erbey is stepping down after 30 years with the Atlanta-based mortgage servicer.
Analysts at Barclays don't believe the settlement will cripple Ocwen's ability to continue to service private label mortgage-backed securities (RMBS), at least not unless others seek damages as well.
"Ocwen has to pay a total of $50 million distributed among New York borrowers they have foreclosed [on] since January 2009," the analysts said. "If more states make similar demands, the cost could scale up dramatically."
The same holds true for the $100 million fine the company has agreed to pay directly to NY regulators. Should other regulators seek damages, the company's costs will go up, with a proportionate hit to its ability to continue servicing mortgages in RMBS.
Servicer Advance Deals: Early Amortization?
On a related front, the analysts did not expect the announcement to have an impact on the bonds backed by receivables of the money that Ocwen has advanced to investors of mortgage-backed securities.
But there is an unlikely scenario where there could be an accelerated paydown of these servicer advance securitizations.
This would happen if the administrative agent of the deal characterized Erbey's departure as a "change in control" of the servicer Ocwen Loan Servicing under the securitizations issued by Ocwen-related vehicle HLSS Servicer Advance Receivables Trust (HSART).
According to HSART documents, one way of defining a change of control is a "a material change in the identity of the members of the board of directors...of [the] Parent that could have a material and adverse effect on the Receivables or the Noteholders, as determined by the Administrative Agent in the exercise of its reasonable discretion."
Barclays analysts belive that the adminstrative agent will probably not judge Erbey's departure as "material" given that the management team otherwise remains the same at both the parent company and Home Loan Servicing Solutions, which purchases Ocwen's servicer advance receivables and sells them to HSART.
At the same time, the analysts did not rule out such an event.
Ocwen has been engaged in a two-year long legal case over whether it backdated thousands of foreclosure letters to homeowners. The company had already set aside $100 million for a potential settlement during this year's third quarter. Ocwen will pay the aforementioned $100 million to New York state as part of a civil penalty while an additional $50 million of fines will be paid to current and former New York homeowners who Ocwen filed foreclosures against between January 2009 and December 19, 2014. Ocwen will charge the additional $50 million against its fourth-quarter results.
Ocwen will also accept increased oversight of Ocwen's operations, the adoption of New York borrower assistance measures, and Department of Financial Services' approval for mortgage-servicing rights acquisitions.
Erbey will step down from his post on Jan. 16, at which point, Barry Wish, an Ocwen director, will take over as non-executive chairman.
"I am grateful to the many associates who have worked alongside me and proud of what we have accomplished," Erbey said in a released statement.
Ocwen's shares plunged in news of the settlement with the New York department of financial services. At 11 a.m., the stock was down 22.4% from Monday's close, to $16.99.