ASPS - Altisource

[yadayada]

If you like Ocwen, you gotta own ASPS. ASPS is actually better then Ocwen. Unless I am missing something big.

[jay21]

ASPS is not a mortgage servicer.  It provides services to the real estate companies (including mortgage servicers).

 

If you like Ocwen, you gotta own ASPS. ASPS is actually better then Ocwen. Unless I am missing something big.

 

I can't really tell which one is better.  I assume that ASPS will get paid as the result of any increase in OCN's revenue, and probably have to deploy less capital to grow, but maybe OCN will benefit more from a normalized economy and a return of non-prime products as delinquency rates stabilize and the cost of servicing goes down for OCN, while simultaneously reducing the default related revenue of ASPS.

 

It's complex and both look cheap to me.  So I own both.

[Liberty]

New 52-week low.

 

Looks like this might be the problem:

 

http://www.reuters.com/article/2014/08/04/new-york-ocwen-financial-idUSL2N0QA0YY20140804

[buylowersellhigh]

New 52-week low.

 

NY banking regulator questions Ocwen's ties to affiliated company

By Peter Rudegeair and Karen Freifeld

 

NEW YORK, Aug 4 (Reuters) - New York's top banking regulator said on Monday that Ocwen Financial Corp(OCN), a mortgage servicing company, may be funneling as much as $65 million to an affiliated company even though his office has raised concerns about potential conflicts of interest between such entities.

 

Benjamin Lawsky, superintendent of New York'sDepartment of Financial Services, sent a letter to Ocwen questioning its new contracts to provide force-placed insurance with Southwest Business Corp, an agent that was recommended by Altisource Portfolio Solutions SA(ASPS), an Ocwen affiliate.

 

Forced-place insurance policies are usually taken out by banks or other lenders on properties for which the owner does not have sufficient or any coverage. The premiums are passed onto borrowers.

 

"The contracts, dated as of June 1, 2014, indicated that Altisource will generate significant revenue from Ocwen's new forced-place arrangement while apparently doing very little work," Lawsky wrote in the letter.

 

Lawsky said that insurance agencies affiliated with mortgage servicing companies like Ocwen have an incentive to purchase force-placed insurance with high premiums, which "can push already struggling families over the foreclosure cliff."

 

In February, Lawsky sent a letter to Ocwen raising questions about whether ties that its executives had to related mortgage companies, including Altisource, could encourage them to push borrowers into foreclosure. (Reporting by Peter Rudegeair and Karen Freifeld; Editing by Leslie Adler)

[PatientCheetah]

let me know if I am wrong, I think OCN has the best chance of preserving most of its earnings power if Erbey is forced to consolidate his empires. how awesome would it be if we can get some shares in the teens. I am very excited from watching this carnage.

[buylowersellhigh]

let me know if I am wrong, I think OCN has the best chance of preserving most of its earnings power if Erbey is forced to consolidate his empires. how awesome would it be if we can get some shares in the teens. I am very excited from watching this carnage.

 

Don't believe that WAC suffers from this "affiliate problem."

[yadayada]

wish i waited some. Thoughts on these accusations? I got the idea that Erbey was trustworthy and wouldn't do such stupid things like this. Especially since he seems to have a strong grip on his companies.

[PatientCheetah]

let me know if I am wrong, I think OCN has the best chance of preserving most of its earnings power if Erbey is forced to consolidate his empires. how awesome would it be if we can get some shares in the teens. I am very excited from watching this carnage.

 

Don't believe that WAC suffers from this "affiliate problem."

 

You also won't see a panic selling. Reminds me of Moody's a few years ago.

[Evolveus]

"Lawsky said that insurance agencies affiliated with mortgage servicing companies like Ocwen have an incentive to purchase force-placed insurance with high premiums, which "can push already struggling families over the foreclosure cliff."

 

That statement seems like conjecture.  Doesn't show proof that they necessairly put high premium insurance in place, nor does it state specific examples of the force place insurance actually beign the catalyst to put homeowners into forclosure. Altisource recommended a specific insruance Co, and that is a crime?

 

It did says that ASPS would generate some fees for doing 'very little work."  Is there a certain amount of work required to generate and justify fees? 

 

I could be way off, and would apprciate a clearer breakdown of the factual wrong doing in the case the Lawsky is trying to make. 

 

With Basel III around the corner for big banks, do the big 4 banks really want Lawsky interfering with the offloading of these MSR's which they aren't adequately equipped to handle cost effectively?  How long can one guys' political aspirations stand between the 4 four and billions of $? 

[GrizzlyRock]

Regarding this morning's letter my question is: what is Lawsky getting at with respect to Ocwen?

 

Is it the fact that Erby was involved in the decision making process?  Is he trying to complain to Ocwen's board that Erby is favoring other companies?

 

Where is Lawsky going with this line of questioning other than to impugn Erby?

[wbr]

In this article http://oraclefromomaha.wordpress.com/2014/04/29/altisource-portfolio-solutions/ Lawsky's motives are explained very well.

[yadayada]

Lawsky's bitcoin regulations were beyond retarded (and I dont even care about bitcoin). Clearly showed he did not understand how it worked at all.

 

Also why on earth would Erbey who has a tight grip on these companies, risk everything for a measily extra 2-3 million$ in profit. When total profit is over 200 million$. That does not make sense.

 

So far everything I read about Erbey seems to say the opposite. Guy turned off his airco because the 2000$ bill is too high. Lives a frugal lifestyle, and basicly lives for his work. Does not seem like a guy who would be greedy and thinks short term.

 

Also Lawsky's original concerns showed that he did not really look at the numbers. Also he complains that these fees will cause family's to be evicted, yet Ocwen keeps the most families in their homes.

[morningstar]

Seems like a pretty serious issue for Erbey - if Lawsky is correct that Erbey violated Ocwen's written corporate policies and involved himself in a process that led to business being assigned to a company he controls, that's not something that he will be able to pass over lightly. If there's hard documentation to support the allegation it seems hard for Erbey to work around it.

 

Not at sure it is as big a problem for either company as for Erbey himself. That said, the market seems also to be taking belated focus on the force-placed insurance issue for ASPS. You'd have to assume that all the non-bank servicers have been just as irresponsible in this space as the banks were and the ultimate settlements will probably look at lot like the ones the banks signed... probably a large or total cut in commissions generated by lender placed insurance is coming.

[thepupil]

Does not seem like a guy who would be greedy and thinks short term.

 

the RESI/AAMC arrangement makes Erbey look pretty greedy to me. Never looked at any of these co's except RESI/AAMC as a potential short and don't really have a view on Erbey, but I think the RESI/AAMC fee arrangement is pretty much the definitinon of greed, not that that's a bad thing necessarily; it created a ton of market value

 

anyone have a view on either? if you like the housing recovery trade RESI is below book, but the fee arrangement with AAMC sucks, and AAMC is still ridiculously priced unless it can attract non-RESI clients (doesn't seem particularly likely)

[yadayada]

What services, if any, does Altisource or its subsidiary provide to SWBC in exchange for

SWBC paying the Altisource subsidiary a commission of 15% of insurance premiums?

In addition, it appears that payment of this commission excludes premium generated by

policies issued on properties in New York State. Please describe the negotiations that

resulted in this exclusion, and identify any alternate compensation to be paid to

Altisource or any affiliate to make up for the excluded commissions on New York

properties.

ok this is giving me goosebumps :/ Starting to think I made a mistake here.

[jay21]

What services, if any, does Altisource or its subsidiary provide to SWBC in exchange for

SWBC paying the Altisource subsidiary a commission of 15% of insurance premiums?

In addition, it appears that payment of this commission excludes premium generated by

policies issued on properties in New York State. Please describe the negotiations that

resulted in this exclusion, and identify any alternate compensation to be paid to

Altisource or any affiliate to make up for the excluded commissions on New York

properties.

ok this is giving me goosebumps :/ Starting to think I made a mistake here.

 

What was the resolution to Lawsky's 8 questions on Hubzu?  Did ASPS ever publish answers?

 

I wonder why I haven't heard much since April.

[yadayada]

This could explain some of the increased fees?

Growth in the insurance services business was driven by our overall growth and the addition of loss draft processing to our suite of insurance services.

 

This is managing of claims when the liability happens right? Maybe they provide the same tech they provide Ocwen with, to these insurers?

[yadayada]

Ok I tried to analyze this whole thing. And try to put a more optimistic spin on it. Pls correct me if im wrong.

 

So basicly the problem is that forced insurance directly with related parties (sounds bad but is 100% legal) was forbidden by regulators late 2013. So it seems someone else does the insurance, and ASPS increased their services to these insurance operations through technology or otherwhise. So now he is questioning why SWBC, the entity that handles the insurance and is between Ocwen and the insurers, pays a 15% fee to ASPS. Also the fee from Ocwen to SWBC has doubled from their previous insurer (about 5 million$) and 75% of that is passed on to ASPS from SWBC (this could indicate that ASPS provides same tech that allows Ocwen to be lower cost?). Or if you are more pessimistic on Erbey's ethics, it could indicate that he is trying to bleed homeowners through this SWBC entity (that is not owned by any of his companies).

 

So now Lawsky is afraid that this will happen (despite Ocwen having a better track record then basicly any servicer out there in this regard, and was actually sued for keeping too many in their homes):

Throughout this process, did members of the Credit Committee or any Ocwen personnel

give any consideration to the impact that Altisource fees and commissions would have in

increasing insurance premiums to be paid by struggling families?

 

And the rest of the questions relate to asking what insurance costs are (not broken out in financials), who approved it, what research went into finding alternatives, and basicly why did fees increase? Asking for costs mainly because Lawsky thinks it is like a 2 man job blindly sticking very high fees on homeowners And this:

 

Altisource’s presentation to the Credit Committee stated that “Altisource will establish its

own managing general underwriter during 2014 to provide LPI underwriting services

starting in 2015.” Please explain Altisource’s intention to establish a managing general

underwriter, state whether Ocwen supports Altisource’s plan, and explain how this

development will affect Ocwen’s force-placed program, Altisource’s revenue, and the

fees to be charged to Ocwen borrowers or mortgage investors.

 

Also this does not make sense:

The Department and its Monitor have uncovered a growing body of evidence that Mr. Erbey has

approved a number of transactions with the related companies, despite Ocwen’s and Altisource’s

public claims – including in SEC filings1

– that he recuses himself from decisions involving

related companies. Mr. Erbey’s approval of this force-placed insurance arrangement as

described above appears to be a gross violation of this supposed recusal policy.

 

Now why would Erbey be dumb enough to openly violate that? Maybe because SWBC is not one of these entities (and also not a related party):

Ocwen Financial Corporation 2013 Form 10-K Annual Report, at 18 (“We have adopted policies, procedures and

practices to avoid potential conflicts with respect to our dealings with Altisource, HLSS, AAMC and Residential,

including our Executive Chairmen recusing himself from negotiations regarding, and approvals of, transactions

with these entities.”); Altisource Portfolio Solutions S.A. 2013 Form 10-K Annual Report, at 17 (“We follow

policies, procedures and practices to avoid potential conflicts with respect to our dealings with Ocwen, HLSS,

AAMC and Residential, including our Chairman recusing himself from negotiations regarding, and approvals of,

transactions with these entities.”).

 

My impression is that Lawsky makes a lot of assumptions here. For example saying that with very little work they collect insurance fees. But then he later asks to actually show costs and gives away that he does not really know anything. Increased costs could very well be because of increased participation in those insurance services. Also most of their insurance does not come from Ocwen, so I doubt this is a shell operation. And the insurance revenue from unrelated parties has been growing faster then from related parties.

 

Also making the assumption because they think there is one related party transaction he approved, that there must be more. And claims to have evidence, yet that is not discussed at all here.

 

What does worry me is that they do not collect that 15% fee from their insurance agent in New York (lawsky's jurisdiction). That sort of indicates guilt. So  not a lot of substance. This could be bad if Erbey really is a greedy short term oriented pig.

[Liberty]

http://glennchan.wordpress.com/2014/08/04/ocwenaltisource-force-placed-insurance/

[morningstar]

As far as I can tell there are a few major issues here:

 

(1) The arrangement between ASPS and SWBC looks like a way to work around the rules against servicers benefiting from rebates on force-placed insurance. Naturally brokers are still allowed to collect their normal commissions on force-placed insurance and servicers (not just Ocwen) have taken to using empty shell insurance brokerages to participate in these fees. ASPS's "agency" entity, Beltline Road, appears to be such an empty shell (perhaps ASPS can demonstrate otherwise, but that seems doubtful to me). Here it has the added twist that the brokerage is not actually owned by the servicer, but a related party. But I think that this practice is likely to be killed by regulators across the board for all servicers in due course - it's an obvious workaround to replicate an existing barred practice and the regulator should push back.

 

(2) The other fee-based relationships between SWBC, ASPS, and OCN e.g. over data management - considering Erbey's involvement in approving the transaction, OCN will need to show that various options were considered, including with non-ASPS partners, and that the decision was supported by best business practices. Probably hard to show. The fact that ASPS is being chosen as a vendor to collect fees, and Ocwen tapped ASPS's biggest shareholder to approve that selection, does not indicate healthy corporate governance. Reminds me of Dick Cheney running GWB's vice presidential selection committee...

 

(3) The fact that this all happened after the first letter sent by NYDFS. This is major trouble in my view b/c in a heavily regulated industry why would you not do all you can to appease your regulator? Does Erbey think BAC, WFC, et al. are going to keep doing business with a company that has an antagonistic relationship with New York's lead financial regulators? It's one thing to make mistakes and all these companies will do so. But when you are called out the appropriate response is "Yes sir, may I have another" - even if you want to talk back to the regulator in the press, you need to modify business practices to appease. (Notice that while Dimon complains about rules all the time, JPM was among the first to settle its disputes with regulators, aggressively shut down the Whale trade when it drew attention, etc.) Regulators are telling Ocwen it needs to change - doesn't matter how many presentations they put out about how they have the highest quality servicing.

 

Overall, I think that Ocwen, as the master servicer, generally controls the cards. To me the risk is more to ASPS if its contracts with Ocwen end up being rebid or reset to market rates. However, I do worry that in a highly regulated industry dragging out this spat is going to destroy a lot of value. You can't tell me that someone in a boardroom at Bank of America isn't saying, lets look at Nationstar for this next bulk servicing deal.

[yadayada]

What services, if any, does Altisource or its subsidiary provide to SWBC in exchange for

SWBC paying the Altisource subsidiary a commission of 15% of insurance premiums?

In addition, it appears that payment of this commission excludes premium generated by

policies issued on properties in New York State. Please describe the negotiations that

resulted in this exclusion, and identify any alternate compensation to be paid to

Altisource or any affiliate to make up for the excluded commissions on New York

properties.

ok this is giving me goosebumps :/ Starting to think I made a mistake here.

 

What was the resolution to Lawsky's 8 questions on Hubzu?  Did ASPS ever publish answers?

 

I wonder why I haven't heard much since April.

I think this answers your question

Finally, Ocwen and Altisource state in their public filings that rates charged under agreements with related companies are market rate,2 but Ocwen has not been able to provide the Monitor with any analysis to support this assertion.

[yadayada]

Thinking about it again, his argument seems really weak. For example he accuses Erbey of interfering with related party transactions, approving the SWBC deal. But this is not a related party. This is a independent third party not owned by any of his companies. This seems sort of strange, as it is basic reading comprehension?

 

First he states this:

Based on its investigation and through the Monitor’s work, the Department understands that Ocwen’s force-placed arrangement with Altisource features the use of an unaffiliated insurance agent, Southwest Business Corporation (“SWBC”), apparently as a pass-through so that Ocwen and Altisource are not directly contracting with each other

 

That is clearly not a violation of this:

We have adopted policies, procedures and practices to avoid potential conflicts with respect to our dealings with Altisource, HLSS, AAMC and Residential, including our Executive Chairmen recusing himself from negotiations regarding, and approvals of, transactions with these entities.

 

Also why the hell would Erbey be so stupid to openly violate that rule?

 

Second he first claims there are kickbacks for doing very little work, but then he asks for the cost structure of their insurance services. So he basicly makes the assumption that ASPS is leeching off Ocwen here for a large sum of money. And then he asks ASPS to please provide any evidence that this might be the case, as he has none.  The only reason he thinks this is because of some increased revenu. I get this from their latest 10q:

 

The increase in gross profit margin was partially offset by the impact of revenue mix, costs we are incurring to build and develop our insurance services business,

 

And if you notice, costs have increased a lot as well. And most of their revenue does not come from related parties.

 

so I agree with glenn chan, you have to assume Erbey is stupid. From reading a lot about this guy, I get the impression he is the opposite. And Lawsky's points are dodgy at best. One of his accusations is based on incorrect facts. It seems he is grasping at straws, unless he is holding back a ton of evidence.

 

And finally why is he doing it like this? Why is he not privately investigating Erbey?

 

also to add, Ocwen has shown to do more loan modifications (getting sued by investors for this) and is clearly better for homeowners with a all around lower complaint ratio despite the worse loan book they service. So by halting all this, he is actually hurting homeowners. Now there are families being kicked out by banks, and if he wouldn't have done all this, some of them might actually stay in their homes if OCN would service them now.

[ItsAValueTrap]

also to add, Ocwen has shown to do more loan modifications (getting sued by investors for this)

 

I don't think any of their RMBS investors have sued them.

[yadayada]

yea you are right, there were just threats.

[morningstar]

Thinking about it again, his argument seems really weak. For example he accuses Erbey of interfering with related party transactions, approving the SWBC deal. But this is not a related party. This is a independent third party not owned by any of his companies. This seems sort of strange, as it is basic reading comprehension?

 

Ocwen needs a higher quality response than this, e.g. showing there were layers of approval in which Erbey was recused. This is an arrangement whereby ASPS receives milllions in fees. Exactly the sort of thing that would seem like a potential conflict of interest and which, on its face, is problematic.

 

In the same way it would be problematic if you hired someone to run your company, discovered he was getting fees paid out to him on the side from one of your vendors as a commission for directing your business, and his response was "well, I structured the transaction not to violate your conflict of interest policy." Would you actually be satisfied with that? I think investors ought to be concerned if they saw a similar fact pattern from the chairman of any listed company.