Investments Servicing

Home Loan Servicing Solutions fires back at mortgage-negligence claims

Ocwen associate answers charges from hedge fund

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Home Loan Servicing Solutions, Ltd. (HLSS) is joining with its associated company, Ocwen Financial (OCN), in the fight against investors who claimed that the companies breached their mortgage bond covenants, and is accusing the investors of attempting to profit on their stock holdings in HLSS as opposed to actually caring what happens with the mortgage bonds.

Last week, hedge fund BlueMountain Capital Management sent notices of default to Ocwen and Home Loan Servicing Solutions, saying that Ocwen’s regulatory troubles have caused an “irrefutable” default on notes the hedge fund holds in connection with the HLSS Servicer Advance Receivables Trust.

BlueMountatin Capital also stated in a letter addressed to Home Loan Servicing Solutions, Ocwen Loan Servicing, HLSS Servicer Advance Receivables Trust, and Deutsche Bank National Trust Company that Ocwen’s servicing issues caused a default on “certain residential mortgage-backed securities collateralized by loans serviced by Ocwen Loan Servicing” that BlueMountain Capital owns.

BlueMountain also said that that holds a short position in the stocks of both Ocwen and HLSS, and according to HLSS, that short position is BlueMountain’s true motivation for accusing HLLS of default.

“We have very serious concerns about BlueMountain’s motivations for publicly filing their letter, James Lauter, Home Loan Servicing Solutions’ senior vice president and chief financial officer, said in a letter sent to Deutsche Bank National Trust Company, the indenture trustee.

“It appears that BlueMountain’s assertions may be motivated by its financial interest in profiting from these short positions, rather than by any interest it may have as a holder of notes issued by the trust,” Lauter also said in the letter, which was revealed in a filing with the Securities and Exchange Commission.

In the letter, Lauter says that HLSS reviewed the “purported” events of default, “disagrees with BlueMountain’s assessment” and says that BlueMountain’s short position in Ocwen and HLSS is the real reason for both sending the letter and making it public.

Lauter says that, despite what BlueMountain claims, the trust has been meeting its payment obligations and will continue to do so. He also says that Ocwen is in “full compliance” with its obligations.

“BlueMountain does not, and could not, allege that the trust is experiencing any financial distress,” Lauter writes. “Consequently, no harm will result from the indenture trustee taking the time needed to conduct an orderly and proper evaluation of BlueMountain’s assertions. In contrast, a presumptive determination of the validity of these allegations, undertaken without measured consideration, would cause enormous and irreparable harm to the trust and its noteholder.”

Ocwen also stands accused of mortgage payment negligence by a group of mortgage bond investors, which reportedly includes BlackRockMetLife, and Pimco.

In its response to those charges, Ocwen also claimed that the accusing parties had ulterior motives.

“Your letter obscures the ultimate objective of your investor clients: to stop servicers from modifying loans and force them to foreclose on and evict as many struggling homeowners as quickly as possible,” Ocwen said in the letter of response to claims that Ocwen failed to perform its contractual obligations as a servicer by failing to properly collect payments on $82 billion of home loans.

"While knee-jerk foreclosures may redound to the special economic interests of your clients, they are not in the best interests of the trusts as a whole, not consistent with industry practice, and therefore prohibited under the servicing agreements,” Ocwen added.

Ocwen also said that the letter, sent to the nonbank by the law firm of Gibbs & Bruns on behalf of the mortgage bond investors, was “drafted in an inflammatory tone, with misleading content, and coordinated with media release so as to create wildly false impressions.”

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