California’s Department of Business Oversight is looking to suspend Ocwen’s license in California, which is the company's largest single state exposure, representing 23% of the company's unpaid principal balance and 15% of the loan accounts serviced.
The development wasn't entirely unexpected; just last month the mortgage servicer announced a $150 million settlement with New York regulators and homeowners to settle allegations that it fudged foreclosure documents.
“After Ocwen’s settlement with the New York Department of Financial Services in late December, there was a distinct possibility that other states could investigate Ocwen for similar servicing violations,” Barclays stated in a report published Tuesday.
Standard & Poor's issued a statement saying that, while the development doesn’t pose an immediate threat to the Ocwen servicer rating (currently B’ with a negative outlook) or rankings, it does highlight the company's vulnerability to regulatory risk.
The California regulator claims that Ocwen failed to provide information and documents that it was seeking in an effort to determine whether the servicer had fully complied with the provisions under the California Homeowner Bill of Rights. A subpoena requesting this information was filed in October 2014.
As a penalty, the regulator, which oversees California state-licensed financial services companies, wants Ocwen's residential mortgage lender and loan servicer license suspended for a up to 12 months.
Ocwen released a statement saying that it sent the information to the DBO in December 2014, and is hopeful that its “ongoing cooperation will result in a satisfactory outcome for all parties.”
If the matter isn’t dropped, Ocwen will try to reach a settlement--in a process that could continue at least until July 2015. “There is little chance that the mortgage servicer would opt against settlement because a suspension could force the servicer sell its entire non-agency MSR portfolio,” Barclays report states. “Given the size of California to its servicing portfolio and the fact that every non-agency RMBS pool holds some loans in California, Ocwen could potentially become ineligible to be a master servicer for any of its non-agency trusts.”
Barclays also reiterated in the report that Ocwen’s servicer advance securitizations might be at risk of an accelerated paydown. Barclays first warned of this risk in December; in the report published Tuesday, it said that the potential for this scenario “has certainly increased at this point.”
As of Sept. 30, 2014, Ocwen estimated that its mortgage servicing rights portfolio had a fair market value of $2.47 billion.