If the last few months are any indication, Ocwen Financial (OCN) Executive Chairman William Erbey was slightly incorrect when he proclaimed that the entire mortgage servicing rights market was frozen after the by the New York Department of Financial Services, after the NYDFS, led by Superintendent Benjamin Lawsky, put a $2.7 billion MSR deal between Ocwen and Wells Fargo (WFC) on an indefinite hold.
In the five months since Erbey’s proclamation, several significant MSR portfolios have become available for sale, totaling almost $20 billion in MSRs that changed hands since Erbey made the claim during a conference call for Home Loan Servicing Solutions (HLSS) first-quarter earnings in April.
During that call, Erbey said, “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. The whole market has stopped until that gets resolved.”
But during a panel at ABS East, a massive conference on the securitization and secondary market taking place this week in Miami, one panelist had Erbey’s back in a big way, saying that the MSRs on the loans that make up the pre-crash residential mortgage-backed securitizations are “at a standstill,” without an end in sight.
“We’re at a standstill until we get Mr. Lawsky out of the way in New York,” Michael Lau, CEO of Pingora Asset Management, said during a panel titled “Legacy RMBS: Risk Mitigation and Servicing Update.”
Lau was joined on the panel by Greg Botto, the managing partner of Recovco Mortgage Management; Chris Haspel, the partner and head of capital markets for Fenway Summer; Terry Smith, CEO of Rushmore Loan Management Services; Diane Moormann, vice president of master servicing for Nationstar Mortgage (NSM); and Joe Dedominicis, managing director of Zingenuity.
During the one-hour session moderated by Dave Hurt, vice president of global capital markets at Corelogic, much of the discussion was focused on the transfer of servicing rights and the issues of such transactions.
In recent months, MSR transfers have come under the microscope of the Consumer Financial Protection Bureau, which in August said that it had “heightened concern” over the continuing high volume of MSR transfers.
And last week, a report from Fitch Ratings said that the rapid growth of nonbank mortgage servicers, like Ocwen, presents a threat to the performance to private-label RMBS because of the potential for payment disruption and because, “most nonbank servicers, including most of the current top five, have a weaker financial profile and are currently rated non-investment grade or are not publicly rated by Fitch.”
During the panel at ABS East, which is hosted by Information Management Network, the increasing regulatory burden was a popular topic of discussion, with Lawsky’s efforts chief among the concerns.
“I think it’s real problematic that we’re sitting here doing nothing,” Lau said.
Ocwen and its affiliated companies received their fair share of attention during the panel as well. Ocwen has been the subject of recent probes by the Securities and Exchange Commission and the NYDFS over the convoluted relationship between Ocwen and its affiliated companies, Altisource Residential (RESI), Altisource Asset Management Corp (AAMC), Altisource Portfolio (ASPS), and Home Loan Servicing Solutions (HLSS).
The NYDFS has been looking into Ocwen’s business since February, when it sent a letter to Ocwen’s general counsel about the company’s dealings with its affiliates.
But Lau defended Ocwen’s operating structure, saying “The consumer is not being harmed by Ocwen and its affiliates. Investors are being harmed by this stuff (legacy MSRs) not moving.”