Things are heating up in the conflict between New York's top bank regulator and Ocwen Financial Services (OCN), the nonbank that's become a lightning rod for regulatory intervention in the fast-growing nonbank MSR segment.
The superintendent of New York State’s Department of Financial Services sent a letter Monday to the general counsel of Ocwen, walking through specific concerns and questions the banking regulator has for the nonbank.
DFS Superintendent Benjamin Lawsky has eight primary questions for Ocwen’s general counsel, and he wants them answered by April 28.
Emails to Ocwen’s media relations department were not returned by publication time.
Lawsky’s move comes just four days after Ocwen CEO Bill Erbey said that Lawsky’s indefinite hold on the $2.7 billion MSR deal between Ocwen and Wells Fargo (WFC) has put a freeze on all MSR deals in the market. Erbey made the statement during the conference call for Home Loan Servicing Solutions (HLSS) first-quarter earnings.
“Until we resolve – this relates to Ocwen – until we resolve New York State we’re not acquiring any new (MSR) portfolios at all. As a matter of fact the entire market – nothing is being put out for bid right now,” Erbey said. “The whole market has stopped until that gets resolved.”
This is the second letter from Lawsky’s office to Ocwen seeking specific answers to broad questions about the company and its relations with affiliates. Lawsky’s office is putting a critical eye to the increasing role of nonbanks seeking MSRs.
Lawsky’s latest letter, a copy of which can be read or downloaded here, says that his office is looking at the relationship between Ocwen and Altisource Portfolio, and Altisource Portfolio’s subsidiary, Hubzu, which Ocwen uses as its principal online auction site for the sale of its borrowers’ homes facing foreclosure, as well as investor-owned properties following foreclosure.
“Hubzu appears to be charging auction fees on Ocwen-serviced properties that are up to three times the fees charged to non-Ocwen customers. In other words, when Ocwen selects its affiliate Hubzu to host foreclosure or short sale auctions on behalf of mortgage investors and borrowers, the Hubzu auction fee is 4.5%; when Hubzu is competing for auction business on the open market, its fee is as low as 1.5%. These higher fees, of course, ultimately get passed on to the investors and struggling borrowers who are typically trying to mitigate their losses and are not involved in the selection of Hubzu as the host site,” the letter states.
“The relationship between Ocwen, Altisource Portfolio, and Hubzu raises significant concerns regarding self-dealing. In particular, it creates questions about whether those companies are charging inflated fees through conflicted business relationships, and thereby negatively impacting homeowners and mortgage investors,” Lawsky writes. “Alternatively, if the lower fees are necessary to attract non-Ocwen business on the open market, it raises concerns about whether Ocwen-serviced properties are being funneled into an uncompetitive platform at inflated costs.”
Generally, Lawsky is seeking to find out how Hubzu operates, how much of Ocwen’s REO and short sales are listed on Hubzu, how Hubzu determines and charges fees, and other details on Hubzu and other subsidiaries.
For the eight questions Lawsky has, click below.