ASPS - Altisource

[Ross812]

How is this material to Ocwen?

 

If Ocwen has 450B in MSR's and we assume they are evenly distributed among 50 states, it would stand to reason the have about 9B worth of MSRs in NY. At 350k per mortgage this is 25k homes. They had less than 250 complaints in NY meaning this stands at 1% of MSRs? This sounds like a salad oil scandal to me.

[morningstar]

How is this material to Ocwen?

 

If Ocwen has 450B in MSR's and we assume they are evenly distributed among 50 states, it would stand to reason the have about 9B worth of MSRs in NY. At 350k per mortgage this is 25k homes. They had less than 250 complaints in NY meaning this stands at 1% of MSRs? This sounds like a salad oil scandal to me.

 

(1) If the NYDFS monitor uncovers any fire rather than just smoke, the other states/federal government will be quick to jump in and collect on any potential settlement as well. (This was the pattern in the national foreclosure settlement as well.) All the other states are just letting Lawsky do the work of turning over stones.

 

(2) As we've seen, the NY regulator appears to have the power to block further bulk MSR transfers. This impacts the Ocwen growth story pretty materially.

 

(3) The population of the US is rather unevenly distributed among the states, as are home values and therefore mortgage balances. So probably closer to 8-10% of Ocwen's UPB is in New York (~35-45bn).

[yadayada]

I think the whole thesis hinges on 4 things:

1. run off of OCN is probably around ASPS's market cap, possibly more

2. if OCN does badly, ASPS could possibly sell services to others

3. part of ASPS income is not related to OCN

4. Complaints to CFPB (the bureau Lawsky is getting his stats from) only got about 9k complaints.

 

As for nr 4, those apparantly 6k mortgages had those issues? So if this was a structural problem, the complaint ratio would be a lot higher. It is only 2.5%. With an issue that big (getting kicked out of your home because of a mistake OCN made) you would expect complaints to at least be in the 10's of thousands. Not at a paltry 2.5%? Especially since banks get up to 20% complaints on their non performing loans.

 

But it seems the majority of the loans were loaded on the platform before february 2013. I wonder what the stats are on those loans? Instead of on the total number of loans. Because it takes time to handle them no?

 

Here are stats":

https://data.consumerfinance.gov/dataset/Consumer-Complaints/x94z-ydhh?

 

That is data lawsky is basing his harassment on. Does anyone know how to put it in excel in a timeline? Because if complaints ramped up in 2013, then it might be structural.

 

Edit: if you filter it, it says 13700k complaints not 9k complaints. On 355k non performing loans that is a 3.8% complaint ratio.

 

Allthough consumer is disputed on 25% of those, so then it checks out roughly to 9k complaints. It seems roughly 6k of those 9k complaints are from the thing Lawsky mentioned, loan modification. I think if it was structural then you would see a lot more complaints?

[Ross812]

 

(1) If the NYDFS monitor uncovers any fire rather than just smoke, the other states/federal government will be quick to jump in and collect on any potential settlement as well. (This was the pattern in the national foreclosure settlement as well.) All the other states are just letting Lawsky do the work of turning over stones.

 

(2) As we've seen, the NY regulator appears to have the power to block further bulk MSR transfers. This impacts the Ocwen growth story pretty materially.

 

(3) The population of the US is rather unevenly distributed among the states, as are home values and therefore mortgage balances. So probably closer to 8-10% of Ocwen's UPB is in New York (~35-45bn).

 

I agree with you on all points. I think the headlines (and opening line of the letter to Ocwen) are sensationalized.

 

Reuters:

 

Ocwen Financial Corp, one of the largest U.S. companies that collects mortgage payments, may have harmed hundreds of thousands of borrowers by sending them letters about loan modifications and foreclosures that were dated months earlier, New York's financial regulator said on Tuesday.

 

Here is Lawsky's letter:

http://www.dfs.ny.gov/about/press2014/pr141021-ltr.pdf

 

There are some discrepancies. In April/May 2014 Ocwen found 6100 backdated letters over 3 months while the monitor discovered a thousand in three days. The NYDFS was aware of this problem since June 19th of 2014 and uncovered 1000 letters by July, but they held onto this information for 4 months previously releasing the letter about insurance kickbacks in August that didn't stick?

 

In response Ocwen says:

 

Ocwen regrets that, due to software errors in our correspondence systems, we inadvertently sent improperly dated letters to some borrowers. As always, our goal is to avoid foreclosure. In the case of the 283 borrowers in New York who received letters with incorrect dates, 281 are currently borrowers with us. We are continuing to review the rest of the cases. We believe that we have resolved the letter dating issues that have been identified to date, and we continue our investigation as to whether there are additional letter dating issues that need to be resolved. We are working with and fully cooperating with DFS and the Monitor to address their concerns.

 

So of the 6100 letters 283 were NY borrowers (about 4.5%) and of those 283, 2 were presumed to be foreclosed on?

 

It looks like Ocwen does indeed have a problem with the way they send out letters. They are probably guilty of ignoring the issue and should pay a fine for their incompetence. It seems though the letters were backdated, Ocwen's other systems were successful in retaining 99% of the customers.

 

This is just a guess, but I would assume Ocwen has over 1M MSR's (450B @ 400k <- likely a huge overestimate as the average home price is 190k)  even if the 6100 letters is understated by 10x this is 5-6% of their MSR's of these incorrectly serviced loans, approximately 1% were ultimately foreclosed on. This is harm caused to 0.05% of their customers or even 0.5% if we say the foreclosures are miss represented by 10x as well. 

 

[yadayada]

Ross, they have 2 million MSR's. But you need to look at the non performing ones, those are about 350k . They get like 98% of the complaints.

 

If you look here:

https://data.consumerfinance.gov/dataset/Consumer-Complaints/x94z-ydhh?

 

You can see exactly what type of complaint Lawsky got, and when he got it. It seems 4800 letters were not disputed, and they were for loan modificiations (the problem at hand here). And like 4000 of those were sent before early 2014. That is the data Lawsky bases his case on I think.

 

If you count in the letters that were disputed, it is 6900 complaints.

 

Honestly, if Ocwen had really serious structural problems, wouldn't you think, the CFPB would receive a higher % of complaints about Ocwen? Instead of a lower % of complaints?

 

Even if most people complain, if the problems were really serious and widespread, you would see at least a double in the ratio of complaints. If Im wrong, it would mean that only a small % of consumers complained about something serious as this.

 

http://seekingalpha.com/article/2580555-update-ocwen-financial-litigation?v=1413930236

 

Some interesting comments on seeking alpha . That Cuomo guy Lawsky is working for is up for reelection in 2 weeks. Here is to hoping ASPS crashes further!

[morningstar]

I don't think the complaint data are too significant - his monitors have direct access to the loan level files so they don't need to rely on consumer data. They wouldn't have been able to find 1000 mis-dated letters Ocwen had missed, if both the company and monitors were just working off a pretty short list of consumer-reported complaints.

 

Big picture, the problem in my view is that OCN's core competency has always been operating at a lower cost. Possibly, they cut a few too many corners and will need to operate at a much higher cost. In the extreme, their MSR assets could become huge liabilities (as happened to BAC).

 

For ASPS, this is probably not such a bad outcome - if OCN needs to do more work to service loans properly, ASPS is probably one of the vendors they'll need to hire to do more services. Within the Erbey family, while OCN and HLSS are exposed negatively to the cost to service, ASPS is arguably exposed positively to the same factor... all 3 are driven by MSR growth, so it would be great for OCN to spend whatever it takes to get back in Lawsky's graces and start the bulk acquisition train rolling again.

[Ross812]

Yadayada, I think the way you are looking at it is better than the way I was looking into it.

 

Morningstar, I agree with your assessment. Ocwen margins could be hurt by this scandal, and they will probably have to pay a fine as well. As long as the regulators don't effectively shut Ocwen down, there shouldn't be too much material damage to ASPS.

 

That is what I like about what is going on here. Worst case scenario: Ocwen is run off over three years. ASPS generates about half of their market cap in FCF from Ocwen in run off while pivoting to other customers. Hubzu is spun off for the other half of the market cap. The rest of the company is your margin of safety. 

 

or

 

Ocwen pays a fine and their margins contract as they appease the regulators and clean up their act. ASPS is easily worth 2-3x its market cap when the growth story is reconfirmed.

 

 

[yadayada]

They found abou 6k misdated letters, and then 1k more. And then they found out it was not fully resolved after early this year.

 

And now Lawsky is speculating that there could be 100's of thousands more (implying basicly all of Ocwen's non performing loans). But if the problem was structural , wouldn't the law of averages state that the consumer complaint ratio would be a lot higher then other servicers and banks? And not lower.

 

So other servicers apparantly did not do much wrong (otherwhise Lawsky would go after those), and they received more complaints. But Ocwen is suposed to be rotten to the core if i have to believe Lawsky, and yet they get LESS complaints??

 

Im not someone to run to consumer bureau's , but even I would do that if i would lose my house due to the fk up off some company.

 

Also this website says 900 complaints, vs like BAC of 2400 complaints, nationstar with 1500 complaints:

 

http://www.consumeraffairs.com/finance/ocwen_loan.html

http://www.consumeraffairs.com/finance/ba.htm

http://www.consumeraffairs.com/finance/nationstar_mortgage.html

 

If Ocwen had serious problems like Lawsky implies, that means that 0.2% of people went online and complaint about it. And additionally, a much much higher percentage would complain about other servicers and BAC that apparantly does not have structural problems. I don't buy that. Granted these are not the best sample sizes, but it does tell you something if the anomaly is so big.

 

I think you can compare it to this. If you went camping for 3 weeks in the wild, you come back and someone tells you income taxes for everyone but the rich have been raised to 70%. To figure out if this is true you turn on the tv, go on the internet, and go downtown to see if this is true (you can't ask anyone). And you would not see any protests, or any outrage on tv or online. You would probably think the person who told you this is full of shit no?

[morningstar]

Ocwen's performance relative to other servicers seems irrelevant - it's like trying to defend a speeding ticket by comparing your speed to some of the other cars on the road. Lawsky's not holding up the other servicers as examplars, certainly not BAC which has already paid billions in penalties on these issues. I'm sure the other servicers are "reading the green" from Lawsky's interaction with Ocwen about the problems they'll need to clean up, and getting a headstart on doing the work - but the big benefit for them is that their acquisition activity can continue on some scale while Ocwen's is halted.

[yadayada]

that is not what I mean, Lawsky supposedly found a structural problem with OCN not with the other servicers. But statistics imply that OCN actually does better then the other ones, and that there are no signs of a structural problem especially with OCN. If OCN is actually the best of all then after some stricter regulation, OCN should be able to continue buying MSR. And the market thinks this is not going to happen. Also if costs go up for everyone, that will erode OCN's cost advantage a bit, but not much.

 

This is like giving the one that goes 10 miles over the limit a prison sentence while letting the others that go 30 miles over, get away with a warning.

 

If lawsky was rational, even though the servicers are not perfect, he would let the banks sell as much MSR"s as possible to OCN as that would be in the best interest of the consumer. Since banks and at least one other servicer are worse. And OCN is the only one with signficant additional room to scale up.

 

But if you have to believe the letter, he thinks that OCN is the worst offender and possibly should not be able to buy more.

 

For example, after the robosigning , BAC got more complaints over the same number of 60+day delinq mortgages then OCN. So if Lawsky cared about the consumer he would get OCN do this, not BAC.

[morningstar]

that is not what I mean, Lawsky supposedly found a structural problem with OCN not with the other servicers. But statistics imply that OCN actually does better then the other ones, and that there are no signs of a structural problem especially with OCN. If OCN is actually the best of all then after some stricter regulation, OCN should be able to continue buying MSR. And the market thinks this is not going to happen. Also if costs go up for everyone, that will erode OCN's cost advantage a bit, but not much.

 

This is like giving the one that goes 10 miles over the limit a prison sentence while letting the others that go 30 miles over, get away with a warning.

 

If lawsky was rational, even though the servicers are not perfect, he would let the banks sell as much MSR"s as possible to OCN as that would be in the best interest of the consumer. Since banks and at least one other servicer are worse. And OCN is the only one with signficant additional room to scale up.

 

But if you have to believe the letter, he thinks that OCN is the worst offender and possibly should not be able to buy more.

 

For example, after the robosigning , BAC got more complaints over the same number of 60+day delinq mortgages then OCN. So if Lawsky cared about the consumer he would get OCN do this, not BAC.

 

Where are you getting the view that Lawsky believes Ocwen is worse than the other servicers? His letter never mentions the activities of other companies at all. I think he probably believes many of the problems he's finding at Ocwen exist at the other servicers as well.

[jay21]

that is not what I mean, Lawsky supposedly found a structural problem with OCN not with the other servicers. But statistics imply that OCN actually does better then the other ones, and that there are no signs of a structural problem especially with OCN. If OCN is actually the best of all then after some stricter regulation, OCN should be able to continue buying MSR. And the market thinks this is not going to happen. Also if costs go up for everyone, that will erode OCN's cost advantage a bit, but not much.

 

This is like giving the one that goes 10 miles over the limit a prison sentence while letting the others that go 30 miles over, get away with a warning.

 

If lawsky was rational, even though the servicers are not perfect, he would let the banks sell as much MSR"s as possible to OCN as that would be in the best interest of the consumer. Since banks and at least one other servicer are worse. And OCN is the only one with signficant additional room to scale up.

 

But if you have to believe the letter, he thinks that OCN is the worst offender and possibly should not be able to buy more.

 

For example, after the robosigning , BAC got more complaints over the same number of 60+day delinq mortgages then OCN. So if Lawsky cared about the consumer he would get OCN do this, not BAC.

 

Where are you getting the view that Lawsky believes Ocwen is worse than the other servicers? His letter never mentions the activities of other companies at all. I think he probably believes many of the problems he's finding at Ocwen exist at the other servicers as well.

 

I agree with you and makes me think the risk of OCN going out of business is low.

 

They will have elevated compliance costs and maybe pay some fines over the next 2 years. Then the monitor will leave and regulatory risk should decline (but not go to zero). IMO, the market is not pricing it this way. Its pricing in something worse.

[yadayada]

that is not what I mean, Lawsky supposedly found a structural problem with OCN not with the other servicers. But statistics imply that OCN actually does better then the other ones, and that there are no signs of a structural problem especially with OCN. If OCN is actually the best of all then after some stricter regulation, OCN should be able to continue buying MSR. And the market thinks this is not going to happen. Also if costs go up for everyone, that will erode OCN's cost advantage a bit, but not much.

 

This is like giving the one that goes 10 miles over the limit a prison sentence while letting the others that go 30 miles over, get away with a warning.

 

If lawsky was rational, even though the servicers are not perfect, he would let the banks sell as much MSR"s as possible to OCN as that would be in the best interest of the consumer. Since banks and at least one other servicer are worse. And OCN is the only one with signficant additional room to scale up.

 

But if you have to believe the letter, he thinks that OCN is the worst offender and possibly should not be able to buy more.

 

For example, after the robosigning , BAC got more complaints over the same number of 60+day delinq mortgages then OCN. So if Lawsky cared about the consumer he would get OCN do this, not BAC.

 

Where are you getting the view that Lawsky believes Ocwen is worse than the other servicers? His letter never mentions the activities of other companies at all. I think he probably believes many of the problems he's finding at Ocwen exist at the other servicers as well.

He did not freeze other servicers , also he sends a lot of letters where he implies OCN's business is rotten to the core. Tone of letters is very negative with lot's of negative unfounded accusations where he assumes the worst. Why did he only send one letter to the other servicers?

 

Also of costs go up for OCN, costs would logically have to go up more for other servicers. So I don't think the cost advantage is really in danger.

[portfolio14]

Moody's downgraded both OCN and ASPS from B2 to B1. That hurts financing costs.

 

http://seekingalpha.com/news/2047345-moodys-downgrades-ocwen-following-dfs-allegations

 

 

[morningstar]

[...]

 

He did not freeze other servicers , also he sends a lot of letters where he implies OCN's business is rotten to the core. Tone of letters is very negative with lot's of negative unfounded accusations where he assumes the worst. Why did he only send one letter to the other servicers?

 

Also of costs go up for OCN, costs would logically have to go up more for other servicers. So I don't think the cost advantage is really in danger.

 

To go back to the speeding analogy, a cop can only pull over one guy at a time whether he's the only speeder or everyone's speeding. Ben Lawsky only employs so many people so he can't go after a dozen companies at once. Ocwen is big and high profile so he chose them. Or maybe he picked them out of a hat. Doesn't really matter at this stage.

 

I don't understand why costs would go up more at the servicers that are not under direct scrutiny. Nationstar and Walter are probably now hiring people to go through their loan files and check for backdated letters. Ocwen's doing the same thing, but twice - they need to hire staff to go through all those files on their own behalf, but also pay for Lawsky's monitor to go comb through the same documents. So it stands to reason Ocwen's cost advantage will suffer as long as they are under scrutiny, which is likely to be a long time.

[rayfinkle]

Results http://files.shareholder.com/downloads/ABEA-32801L/3567398008x0xS1445305-14-4406/1462418/filing.pdf

[rayfinkle]

Pretty unique and shareholder friendly vesting scheme. From the q:

 

 

These option grants have two components, each of which vests only upon the achievement of certain criteria. The first component, which we refer to internally as “ordinary performance” grants, consists of two-thirds of the market-based grant and begins to vest if the stock price is at least double the exercise price, as long as the stock price realizes a compounded annual gain of at least 20% over the exercise price. The remaining third of the market-based options, which we refer to internally as “extraordinary performance” grants, begins to vest if the stock price is at least triple the exercise price, as long as the stock price realizes a compounded annual gain of at least 25% over the exercise price. The vesting schedule for all market-based awards is 25% upon achievement of the criteria and the remaining 75% in three equal annual installments. A total of 1.8 million market-based awards were outstanding at September 30, 2014.

[yadayada]

I think there is a certain black box element in this company. But what I like is that Erbey is really smart and owns 30%. So if he buys back like 250m$ of stock that is very bullish from his point of view. He knows exactly the different outcomes of his companies.

 

If the stock has a decent chance of being worth less, and this whole regulator thing would be a serious problem, then he could have had like 80m$ in dividends instead. And he would be destroying lots of value for himself by borrowing and buying back stock. So it is not like he makes up for this risk by getting extra options.

 

Would be interesting to see what outperformance is for stocks with smart owner operators who buy back truck loads of stock.

 

Im curious what the technology margins will be next year onward. It seems that judging by a few years ago, they are in investment phase there. So that could add another 100-200m$ in income.

[Ross812]

They can repurchase an additional 1.6M shares under their current plan (pg 46). This is about  7.5% of shares outstanding.

[yadayada]

http://www.economist.com/news/leaders/21606279-french-bank-deserved-clobbering-americas-legal-system-looks-extortion

 

 

[leftcoast]

A Deep Look at Ocwen & Altisource - Doug Kass (Oct. 28)

 

http://www.thestreet.com/story/12937059/2/bank-of-japans-act-of-desperation-deep-look-at-ocwen-altisource-best-of-kass.html

ASPS -- The investment case for ASPS is probably equal to or better than Ocwen, which could be in a run-off mode.

 

By contrast, ASPS has multiple pathways of growth. Its current business is robust and diverse and the company currently and will continue to expand into businesses with third party partners (e.g. most recently HSBC noted in a conference call). And ASPS, unlike Ocwen, provides services for multiple companies in different industries.

 

Importantly, ASPS, unlike Ocwen, is not capital intensive. Just the opposite, it's a free cash flow machine. It is therefore the one part of Ocwen that can aggressively return capital. ASPS has already repurchased over two million shares (10% of the outstanding shares) in the current fiscal year at an average price in excess of $102 a share ($30 above the current price).

 

...

 

SUMMARY (On Ocwen and ASPS) -- The circumstances of the last few months have created an attractive reward vs. risk on both stocks for those that are willing to assume continued headline risk. Both companies trade at only approximately 8x earnings.

 

I expect Ocwen to trade in a range of between $17 and $30 over the next 12 months. For ASPS I expect a range of between $65 and $95 (at only 10x FY 2016 forecasts).

 

I anticipate a manageable settlement with the DFS to be announced sometime over the next few months. At that time, the shares of Ocwen and its related companies will likely spike higher, depending on the size and restrictions of the settlement. I expect the likely settlement to be reasonable and less than the market appears to currently anticipate. I also believe that Ocwen might still be allowed to grow through further acquisitions, but perhaps with some restrictions.

 

Altisource's shares have fallen by $100 a share (from $170) since early December 2013 and Ocwen's shares have dropped by $38 (from $57) since the beginning of this year.

 

I have reestablished a long in Altisource Tuesday (I am working as a scale buyer under $71) and I have added to my Ocwen long under $19.

[yadayada]

They did about 168m in earnings in last 3 quarters. And will probably do another 40-50m in Q4. You gotta add back amortization to earnings. So at least north of 200m$ in earnings, that will probably not decline even if OCN does not get new MSR's. So that is around a 6x multiple. Even if it is not resolved, the price should go to 80-90$ at least.

 

If it is resolved that based on probably higher early 2015 earnings, it should trade at like 12-14x forward earnings at least.. So that is 150$+ really. And probably north of 200$.

 

Also they do not trade at the same forward multiples. OCN is a lot cheaper. Why do I know this, but these paid analysts cannot even read a income statement lol.

[yadayada]

So

http://dcmagnates.com/reports-ben-lawsky-leaving-nydfs-for-private-sector-what-fate-awaits-bitlicense/

;D

[krazeenyc]

So

http://dcmagnates.com/reports-ben-lawsky-leaving-nydfs-for-private-sector-what-fate-awaits-bitlicense/

;D

 

This makes you happy?  :P

[yadayada]

oh yessss

 

right? I mean the guy has been quite irrational. Seems that when he is gone, it is likely problems go away for OCN/ASPS