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Lawsky letter condemns alleged Ocwen conflicts

It's about more than a $2.7 billion MSR deal

The “regulator with zeal” heading New York’s Department of Financial Services says Ocwen Financial Corp.(OCN) has a “number of potential conflicts of interest” with other public companies it’s dealing with, and he wants his questions answered.

Benjamin Lawsky, New York’s top banking regulator, sent a letter to Ocwen’s general counsel Timothy Hayes on Wednesday, charging that Ocwen is potentially harming borrowers and pushing homeowners “unduly into foreclosure.”

Lawsky is the regulator who earlier this month put an indefinite freeze on the $2.7 billion MSR deal between Ocwen and Wells Fargo (WFC).

HousingWire obtained a copy of the letter (click here to read it) which states that the DFS is concerned about conflicts between Ocwen and four publicly traded companies chaired by the founder Ocwen, William Erbey.

Ocwen is one of the leading generation of non-bank mortgage servicers as, increasingly, traditional banks move away from mortgage servicing. It is one of the biggest mortgage servicing companies in the country with 2.3 million mortgages under service.

The letter notes that Ocwen’s chief risk officer served as the chief risk officer of another of the companies, called Altisource Portfolio Solutions, “and reported directly to Mr. Erbey in both capacities.

"Altisource Portfolio’s Chief Risk Officer was removed as a result of the Monitor’s review. During its review, the Monitor discovered that Ocwen’s Chief Risk Officer also served as the Chief Risk Officer of Altisource Portfolio, and reported directly to Mr. Erbey in both capacities. This individual seemed not to appreciate the potential conflicts of interest posed by this dual role, which was particularly alarming given his role as Chief Risk Officer. He told the Monitor that Ocwen paid his entire salary, but he did not know and had apparently never asked which company paid his risk management staff. Indeed, it remains unclear whether Altisource Portfolio paid any compensation for the Chief Risk Officer’s services. Although he has since been removed as Altisource Portfolio’s Chief Risk Officer, his and Ocwen’s failure to affirmatively recognize this conflict demonstrates that the relationship between Ocwen and the affiliated companies warrants further examination."

Calls to Ocwen were not returned at press time, but Ocwen has previously stated that it keeps a barrier between Ocwen and the other referenced companies which are in the business of renting and selling foreclosed homes.

Lawskey’s letter demands that Ocwen more specifically detail the relationship and financial connection between the companies’ executives and employees, and for information regarding any other agreements between Ocwen and other companies.

"Presently, Ocwen’s management owns stock or stock options in the affiliated companies. This raises the possibility that management has the opportunity and incentive to make decisionsconcerning Ocwen that are intended to benefit the share price of affiliated companies, resulting in harm to borrowers, mortgage investors, or Ocwen shareholders as a result."

In addition to information on Ocwen’s officers, directors and employees, Lawskey’s office wants all documents sufficient to show the nature and extent of services provided to Ocwen by each of the affiliated companies, including all agreements for such services, and copies of all agreements between Ocwen and the affiliated companies concerning procurement of third party services. Ocwen is also being probed about its agreements concerning the outsourcing of information management to the affiliated companies.

Regarding the Ocwen/Wells Fargo deal, the DFS says it is concerned about Ocwen’s ability to handle Wells Fargo’s portfolio of mortgage servicing rights, a deal that was announced last month and which would have given Ocwen the right to service some $39 billion in mortgages.  

Wells Fargo’s portfolio of residential mortgage servicing rights holds roughly 184,000 loans linked to the transaction. The portfolio represents approximately 2% of the banks total residential servicing portfolio.

While Ocwen is an Atlanta-based company, it is chartered as a New York bank.

Earlier this month in remarks to at the annual New York Bankers Association Annual Meeting and Economic Forum, Lawskey said that the fast growth of non-bank servicers is what gives him pause not just regarding Ocwen but the whole industry.

"Non-bank servicers see a tremendous business opportunity in this regulatory arbitrage, and are moving quickly to gobble up distressed MSRs. But the problems associated with these distressed loans – including homeowners behind on their payments or facing foreclosure – do not just disappear when the big bank sells the servicing rights. Those issues remain when they arrive on the doorstep of a non-bank firm," Lawskey said. "We – both state regulators and the regulated servicers – need to make sure that these MSR transfers do not put homeowners at undue risk. We have a vital responsibility to protect consumers."

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