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Ocwen expects another loss in 2017 thanks to NYDFS, CFPB regulatory issues

CEO: We believe we have earned the right to acquire MSRs again

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Despite the California Department of Business Oversight removing the state's mortgage servicing restrictions on Ocwen Financial, the nonbank is still prohibited from acquiring mortgage servicing rights in bulk, the company’s executives told investors on Wednesday.

As Ocwen CEO Ron Faris noted in his opening remarks, Ocwen is still prohibited from acquiring MSRs in bulk thanks to the company’s previous settlement with the New York Department of Financial Services.

In 2014, the NYDFS fined Ocwen $150 million and forcing the company’s founder and chairman, William Erbey, to resign from his position as chairman. That settlement also restricted Ocwen’s ability to acquire MSRs without the approval of the NYDFS.

The company’s settlement with California allows Ocwen to acquire new mortgage servicing rights in California, but the NYDFS settlement’s terms are still in place, which means that the company cannot acquire bulk MSRs until those restrictions are lifted.

And as Faris told the company’s investors, ending the consent order with the NYDFS is the company’s top priority in 2017.

“With California settlement, we are one step closer to re-entering the bulk MSR market,” Faris said on the call. “But progress must occur soon if we are ever able to make a difference.”

Faris noted that the company’s servicing portfolio has decreased significantly in the three years that its been operating under servicing restrictions, but said that the company has used that time to drastically improve the quality of its operation.

“We believe we have earned the right to allowed to compete again,” Faris said.

The company disclosed as part of its fourth-quarter earnings that it set aside $12.5 million during the quarter for “potential” regulatory settlements.

When questioned about the potential for a settlement related to the NYDFS restrictions during the investor call, the company’s executives declined to answer, directing observers to the disclosures in the company’s upcoming 10-K filing with the Securities and Exchange Commission.

In Ocwen’s third quarter 10-Q filing with the SEC, the company revealed that it is facing an investigation from the Consumer Financial Protection Bureau over the company’s mortgage servicing practices, and could be facing a fine and/or other disciplinary action.

Faris told the investors Wednesday that resolving the CFPB’s investigation is also a top priority for the company in 2017, but cautioned that a CFPB enforcement action is a possibility.

Faris also cautioned investors that Ocwen is currently expecting to post a loss in 2017, due in part to those “regulatory challenges.”

That would be the company’s fourth straight yearly loss.

In 2016, Ocwen posted a net loss of $199.4 million (or $1.61 per share) for the full year. In 2015, the company posted a net loss of $246.7 million (or $1.97 per share). And in 2014, the company posted a net loss of $546 million.

“The regulatory risk and cost burden remains high,” Faris said, adding that the company paid $82 million in third-party monitoring costs in 2016.

Those monitoring costs are the result of the California situation, the NYDFS settlement, and the National Mortgage Settlement, which Ocwen is still subject to.

Ocwen Chief Financial Officer Michael Bourque noted that the company’s monitor costs declined in the second half of 2016. Bourque added that the new California settlement will end that monitor’s presence at Ocwen, so the company expects its monitoring costs to decline in 2017 as well.

Another potential positive for Ocwen on the monitor front is the fact that the NYDFS monitor stipulations is scheduled to expire in March of this year, but the company cautioned that the NYDFS monitor could be extended.

Overall, Faris said that he believes Ocwen is ready to be a player in the MSR market again, adding that the market has shown recently that there are opportunities to acquire substantial MSR portfolios.

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