Mortgage

Why did Altisource Residential delay its earnings call?

Working with Altisource Asset Management to “modify” agreement

In recent weeks, the relationship between Altisource Residential Corporation (RESI) and Altisource Asset Management Corporation (AAMC) has come under scrutiny from investors, including Capstone Equities Capital Management, which called for RESI to terminate its relationship with AAMC, which, according to the company's website, exists solely to provide RESI with “portfolio management and corporate governance services.”

Capstone said that AAMC failed to prevent harm coming to RESI by maintaining the company’s relationship with Ocwen Financial (OCN), which is the “main servicer of RESI’s portfolio.”

Despite those calls, or perhaps because of them, the two companies’ made a joint announcement Monday to delay the companies’ earnings conference calls, which were supposed to take place Monday at 11:30 a.m. Eastern, to an undetermined date.

The reason given? The companies are working to “modify” their asset management agreement.

“AAMC has been working diligently with Altisource Residential Corporation over the last several months to modify the asset management agreement and solidify a long-term relationship between the companies,” AAMC CEO George Ellison said. “We support amendments to the agreement which we believe will promote the growth of Residential and thereby contribute to the long term prospects for AAMC and its shareholders."

No other color or detail on how exactly the companies are modifying the asset management agreement were provided. Nor did the companies provide any detail on why the asset management agreement is being modified.

"Residential is in the final stages of modifying its asset management agreement with Altisource Asset Management Corporation,” RESI’s chairman of the board, David Reiner, said. “As a result, the company has determined it is prudent to delay the earnings call until the agreement has been completed, which the company expects to occur within the next several days."

While Reiner said that the agreement is expected to be completed in the next “several days,” both companies cautioned investors that the consummation of the amended asset management agreement is not a foregone conclusion.

“There can be no assurance that a modified asset management agreement will be completed on a timely basis or at all,” both companies said in separate investor alerts sent Monday morning.

The flow of business between Ocwenand its related companies, RESI, AAMC, Altisource Portfolio Solutions (ASPS), and Home Loan Servicing Solutions (HLSS), has gone under the microscope lately, with everyone from regulators to investors questioning how the companies operate.

The companies’ former chairman, William Erbey, was forced to resign from his positions as part of a $150 million settlement with the New York Department of Financial Services over the companies’ relationships, and several other investors publicly questioned the companies, demanding the companies disassociate themselves completely.

RESI took a step in distancing itself from Ocwen, when it announced recently that agreed to transfer more than $1 billion worth of mortgage servicing from Ocwen to Fay Servicing and BSI Financial Services.

“Divorced from Ocwen’s inefficiencies, RESI could more effectively resolve or modify its non-performing loan portfolio,” Capstone said in its letter to RESI’s board. “Ocwen has also limited RESI’s ability to issue future NPL securitizations, hence limiting the company’s ability to grow.”

Capstone noted the agreements with Fay Servicing and BSI Financial as a potential positive step.

“If these servicing agreements are the initial steps to divorce from Ocwen, RESI must not permit Ocwen to remain in a master servicer role and siphon additional fees for no actual services provided,” Capstone said. “The board instead must terminate the servicing agreement for cause without making any further payment to Ocwen and exit the fundamentally conflicted relationship.”

While it appears that the relationship between RESI and AAMC may be about to change, just how it’s going to change is unknown. But given what both companies said, it appears that Capstone may not get its wish after all.

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