Mortgage

Nasdaq delivers stern warning to Home Loan Servicing Solutions

Delayed release of annual report violates Nasdaq rules

The storm clouds hanging over Home Loan Servicing Solutions (HLSS) just got a whole lot darker.

Late Friday, Nasdaq notified HLSS that the company is no longer in compliance with the stock exchange’s rules for continued listing due to HLSS “not having timely filed” its 2014 annual report with the Securities and Exchange Commission.

Earlier this week, HLSS stated that it was delaying the release of its annual report for the second time, saying in a SEC filing that it needs more time to demonstrate “its ability to operate as a growing concern” to its auditors.

The company also previously delayed its annual report earlier this month due to needing additional time to “complete the assessment of recent events related to the company’s business and determine the impact on the company’s financial statements” and other disclosures.

Now, the company’s repeated delays place it in violation of Nasdaq’s rules.

According to a release from HLSS, the notification from Nasdaq was “expected.” HLSS added that the noncompliance warning has “no effect” on the listing of HLSS’ shares “at this time.”

The company has until May 18 to submit a plan to regain compliance. If Nasdaq accepts HLSS’ plan, Nasdaq may grant an extension of up to 180 days from the 2014 Form 10-K's due date, or until September 14, 2015, to regain compliance, HLSS said.

On the other hand, if Nasdaq does not accept the HLSS’ plan, the company will have an opportunity to appeal that decision to a Nasdaq Hearings Panel.

HLSS reiterated that it has not filed its 2014 annual report because “the company requires additional time to prepare information related to its ability to operate as a going concern and to provide such information to the auditors for the purposes of their audit of the company's financial statements.”

The company said that it plans to either file its 2014 annual report or submit a compliance plan to Nasdaq by May 18.

HLSS’ continued operation was already a concern of Ocwen Financial (OCN), its former parent company.

Ocwen also delayed the release of its annual report due to issues with HLSS.

According to a filing with the SEC earlier this week, Ocwen said it now plans to file its 2014 annual report “on or before March 23,” but adds that there “can be no assurance that it will be able to do so.”

The issue at hand – in addition to all of Ocwen’s other troubles – is HLSS’ ability to fund new servicing advances.

According to the SEC filing, Ocwen “continues to analyze and review” HLSS’ ability to fund servicing advances, adding that “a failure by HLSS to fund new serving advances could have a material negative impact on the company's financial condition.”

Previously, Moody’s Investors Service said that the $1.3 billion acquisition of HLSS by New Residential Investment (NRZ) will actually help stabilize Ocwen’s own servicing operations and improve Ocwen’s future prospects.

Conversely, Compass Point Research and Trading said the HLSS deal will actually have a “material adverse impact” on Ocwen’s servicing margins, due to the increased cost of maintaining the relationship with HLSS, and operational changes that are required by regulators.

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