WhatÕ wrong at Altisource Asset Management?

Stock crashes after company denied at distressed loan auction

It hasn’t been a good day for Altisource Asset Management Corp (AAMC). In fact, the day is looking downright catastrophic. The company’s stock is currently trading at $840 per share, which is down more than $259 for the day. The company’s stock has lost more than 30% of its value in less than four hours of trading.

The precipitous fall comes on the heels of reports that the company’s affiliate, Altisource Residential (RESI), was shut out of a distressed loan auction from the U.S. Department of Housing and Urban Development. According to a statement from HUD, Lone Star Funds was the sole winner of the auction, with a weighted average bid of 77.6% of the collateral value.

HUD said that this was the first time in the history of its Distressed Asset Stabilization Program that a single bidder submitted the highest bid on “each and every pool.”

HUD said that the sale involved a total of 23,000 defaulted single-family loans with $3.9 billion in unpaid principle. The auction consisted of 16 pools of loans, varying in size from $93 million to $1 billion.

HUD also noted that there were 68 “qualified bidders” and that 27 investors submitted 163 bids on the pools, for an average of 10 bids per pool.

“The sale was the most competitive sale to date, drawing a larger number of bidders and bids per pool than previous sales,” HUD said in the statement.

Click here to see the full statement from HUD.

HUD also noted that the sales price has risen from previous DASP auctions, from approximately 50% to the 77.6% winning bid from Lone Star Funds.

Although not confirmed, it is believed that Altisource Residential was one of the bidders in the auction and was shut out, as were all of the other bidders.

The day hasn’t been kind to Altisource Residential either as its stock is down currently 3.02 points (11.78%) for the day.

So what's wrong at Altisource?

In recent months, Altisource and its affiliates have come under fire from the superintendent of New York State’s Department of Financial Services, Benjamin Lawsky, over the company’s handling of its own distressed property auctions.

In April, Lawsky sent a letter to Altisource’s affiliated company, Ocwen Financial Corporation (OCN) questioning its relationship with Altisource Portfolio (ASPS) and its 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.  

“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 wrote at the time.

“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.”

But if the company can’t acquire any more distressed properties through HUD auctions, then the question becomes: What will the company do next?

Last week, HousingWire asked the very same question about Ocwen. Analysts from Compass Point Trading & Research believe that the company may push to expand its business beyond servicing distressed mortgages.

“We believe the company is close to announcing it will be expanding into another area beyond mortgage servicing, such as title insurance or other consumer servicing,” Compass Point’s analysts said. “How it takes shape remains to be seen, but we would expect the new initiatives to be announced by 2Q14 earnings.”

And with the company sitting on more than $1.8 billion in total capital, according to Kroll Bond Rating Agency,  it begs the question of whether the company is truly prepared to spend money to make money.

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