HLSS and Ocwen escalate fight against mortgage negligence claims

Accuse hedge fund of attempting to undermine Ocwen’s stock price

It appears that Home Loan Servicing Solutions (HLSS) and its associated company, Ocwen Financial (OCN) take the claims that they breached their mortgage bond covenants quite seriously.

The companies are fighting back against the claims of hedge fund BlueMountain Capital Management, which recently sent notices of default to Ocwen and HLSS, saying that Ocwen’s regulatory troubles have caused an “irrefutable” default on notes the hedge fund holds in connection with the HLSS Servicer Advance Receivables Trust.

HLSS has already questioned BlueMountain’s motivation in publicly stating that HLSS defaulted on mortgage-backed securities that BlueMountain claims it owns.

“We have very serious concerns about BlueMountain’s motivations for publicly filing their letter, James Lauter, HLSS’ senior vice president and chief financial officer, said in a recent letter sent to Deutsche Bank National Trust Company, the indenture trustee.

BlueMountain also said that that holds a short position in the stocks of both Ocwen and HLSS, and according to HLSS, that short position is BlueMountain’s true motivation for accusing HLLS of default.

“It appears that BlueMountain’s assertions may be motivated by its financial interest in profiting from these short positions, rather than by any interest it may have as a holder of notes issued by the trust,” Lauter also said in the letter, which was revealed in a filing with the Securities and Exchange Commission.

BlueMountain’s motivation is also being called into question by Ocwen, which released a statement Wednesday responding to BlueMountain’s claims.

“Ocwen refutes BlueMountain's allegations and believes no event of default has occurred under the HSART Indenture,” Ocwen stated. “As previously stated, Ocwen will continue to vigorously defend against BlueMountain's campaign, as a short seller of Ocwen stock, to undermine Ocwen's share price and financial position through misleading and inaccurate press releases.”

But publicly questioning BlueMountain’s motivation is apparently just the beginning of HLSS and Ocwen’s response.

HLSS announced Wednesday that it reached an agreement with Deutsche Bank National Trust Company stating that the trustee will “not commence a judicial proceeding to obtain judicial guidance on the merits, if any, of the BlueMountain allegations.”

HLSS notes that in the time since BlueMountain first made its claims in January, no other note holder or note owner has come forward to state that it agrees with BlueMountain’s assertions.

The agreement states that in exchange for not commencing any legal proceedings, Deutsche Bank National Trust Company will “withhold certain excess funds that would otherwise be distributable from the HSART Trust to HLSS Holdings.”

Despite the companies agreeing to not go the legal route, the agreement states that Deutsche Bank National Trust Company is still reviewing BlueMountain’s claims and has not reached its final conclusions on whether HLLS defaulted or not.

HLSS again said that it plants to “vigorously” defend itself against BlueMountain’s claims.

In its statement, Ocwen said that it believes the agreement between HLSS and Deutsche Bank National Trust provides an opportunity for the companies to “conclusively dispel BlueMountain’s false accusations.”

HLSS also stated that it has received multiple proposals from third parties who are interested in pursuing a strategic transaction with HLSS.

“HLSS is working with its financial and legal advisors to evaluate these and other options that may be available to the company,” the company stated in a release. “No decision has been made to pursue a strategic transaction and there can be no assurances that these efforts will lead to such a transaction.”

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