ASPS - Altisource

[scorpioncapital]

A 2nd income stream may be pressured as well - http://dsnews.com/news/11-11-2014/lawsuit-accuses-servicer-illegally-marking-default-servicing-fees

 

"The suit alleges that Ocwen used one of its affiliate companies, Altisource, and third-party vendors to illegally generate "fee income and larger profits for Ocwen and its affiliates.""

 

 

 

 

[ItsAValueTrap]

A 2nd income stream may be pressured as well - http://dsnews.com/news/11-11-2014/lawsuit-accuses-servicer-illegally-marking-default-servicing-fees

 

"The suit alleges that Ocwen used one of its affiliate companies, Altisource, and third-party vendors to illegally generate "fee income and larger profits for Ocwen and its affiliates.""

 

The lawsuit alleges:

 

52. Ocwen’s scheme works as follows: Ocwen directs Altisource to order and coordinate default-related services, and, in turn, Altisource places orders for such services with third-party vendors. The third-party vendors charge Altisource for the performance of the default-related services, Altisource then marks up the price of the vendors’ services, in numerous instances by 100% or more, before “charging” the services to Ocwen. In turn, Ocwen bills the marked-up fees to homeowners.

53. Through this complex arrangement with Altisource, which is intended to disguise the marked-up fees for default-related services, Ocwen effectively side-steps the borrower protections in the mortgage contract.

 

http://stopforeclosurefraud.com/wp-content/uploads/2014/11/Weiner-v.-Ocwen-Financial-Corporation-a-Florida-Corporation-COMPLAINT.pdf

[Ross812]

http://stopforeclosurefraud.com/wp-content/uploads/2014/11/Weiner-v.-Ocwen-Financial-Corporation-a-Florida-Corporation-COMPLAINT.pdf

 

Pretty damning actually:

 

Ocwen’ s Scheme to Mark Up Fees for Default-Related Services

 

51. In its loan servicing operations, Ocwen follows a strategy to generate

fraudulently concealed default-related fee income.  Rather than simply obtain default-

related services directly from independent third-party vendors, and charge homeowners

for the actual cost of these services, Ocwen has a policy, practice, and procedure of

marking up fees for default-related services on homeowners’ loan accounts. As a result,

even though the mortgage market has collapsed, and more and more borrowers are falling

into delinquency, Ocwen continues to earn substantial profits.

 

52. Ocwen’ s scheme works as follows: Ocwen directs Altisource to order and

coordinate default-related services, and, in turn, Altisource places orders for such services

with third-party vendors. The third-party vendors charge Altisource for the performance

of the default-related services, Altisource then marks up the price of the vendors’ services,

        in numerous instances by 100% or more, before “ charging” the services to Ocwen. In

turn, Ocwen bills the marked-up fees to homeowners.

 

53. Through this complex arrangement with Altisource, which is intended to

disguise the marked-up fees for default-related services, Ocwen effectively side-steps the

        borrower protections in the mortgage contract.

 

54. The mortgage contract between a lender and a homeowner generally consists

of two documents:  (i) the promissory note (the “ Note” ); and (ii) the mortgage/security

instrument/deed of trust (the “ Deed of Trust” ).  The mortgage contacts serviced by Ocwen

are substantially similar because they conform to the standard Fannie Mae form contract.

The contract contains certain disclosures describing what is supposed to happen if

borrowers default on their loans.

 

55. The Deed of Trust discloses to homeowners that, in the event of default, the

loan servicer will: pay for whatever is reasonable or appropriate to protect the note

        holder’ s interest in the property and rights under the security

instrument, including protecting and/or assessing the value of

the property, and securing and/or repairing the property.

(emphasis added.)

 

56. The Deed of Trust further discloses that any such “ amounts disbursed” by the

servicer to a third party shall become additional debt of the homeowner secured by the

Deed of Trust and shall bear interest at the Note rate from the date of “ disbursement.”

       

 

57. Additionally, the Note discloses to homeowners that with respect to

        “ Payment of the Note Holder’ s Costs and Expenses,” if there is a default, the homeowner

will have to “ pay back” costs and expenses incurred in enforcing the Note to the extent

not prohibited by applicable law.

 

58. Thus, the mortgage contract discloses to homeowners that the servicer will

pay for default-related services when reasonably necessary, and will be reimbursed or

“ paid back” by the homeowner for amounts “ disbursed.”  Nowhere is it disclosed to

borrowers that the servicer may engage in self-dealing to mark up the actual cost of those

services to make a profit.  Nevertheless, that is exactly what Ocwen does.

 

59. BPOs are a significant category of third party default-related services for

which, in furtherance of Ocwen’ s unlawful enterprise, fees are assessed on homeowners’

loan accounts with substantial, undisclosed mark-ups, fraudulently generating revenue in

the loan servicing business.

 

60. As discussed above, by charging marked-up fees for BPOs, Ocwen violates

the disclosures made to borrowers. Furthermore, the wrongful nature of the marked-up

fees is demonstrated by the fact that Ocwen conceals the marked-up profits assessed on

        homeowners’ loan accounts.

 

Although Ocwen assesses fees for BPOs on borrowers’ accounts in the range

of $100 to $109, as of December 2010, under Fannie Mae guidelines, the maximum

reimbursable rate for an exterior BPO was $80,35 and in practice, the actual cost was much

less. According to the National Association of BPO Professionals, the actual cost of a

BPO may be as little as $30.36

 

62. Ocwen indisputably is aware that the actual cost of a BPO is significantly

less than the marked-up fee it assesses to borrowers.

 

63. In fact, Ocwen has a significant amount of experience in the BPO

marketplace. Beginning in mid-2000, Ocwen Federal Bank FSB (“ Ocwen Bank” ), a

        former wholly-owned subsidiary of OFC, began “ selling” marked-up BPOs to Wall Street

firms acquiring large pools of underperforming loans.

 

64. Ocwen Bank’ s in-house BPO shop was the subject of the litigation styled

Cartel Asset Management v. Ocwen Financial Corp., Case No. 1:01-cv-01644-REB-CBS

(D. Colo.) (“ Cartel” ). In Cartel, Cartel Asset Management, Inc. (“ CAM” ), a large

national BPO vendor, sued OFC, Ocwen Technology XChange, Inc., and Ocwen Bank for

theft of CAM’ s trade secret -- a confidential list of experienced, responsive and competent

realtors who produced high-quality BPOs.37  Ocwen Bank facilitated this theft by secretly

copying the names and contact information of realtors identified on BPOs that it

purchased from CAM, and then embedding the stolen information into its own incomplete

database of BPO providers.38

65. In 2004, a jury awarded CAM compensatory and punitive damages.39  While

        the judgment was on appeal, OFC dissolved Ocwen Bank and transferred the database

containing the stolen names and contact information to OLS, who continued to use and

profit from CAM’ s trade secret. OLS was added as a defendant in Cartel after the Tenth

Circuit remanded for a new trial on damages.  In September 2010, a jury returned a

verdict in CAM’ s favor for more than $13.7 million in compensatory and punitive

damages based on the theft of the trade secret.40  This jury verdict covered the period up

        through August 10, 2009, the date when OFC transferred the BPO product line and the

database to its affiliated company Altisource.  As with OLS before it, Altisource has

continued to use and generate profits from CAM’ s trade secret.

 

66. Notably, in Cartel, William C. Erbey, OFC’ s Executive Chairman, offeredthe following testimony, under penalty of perjury, concerning Ocwen Bank’ s BPO

business:

 

[A]s of 2004, [Ocwen] Bank would pay an agent or broker approximately $45 to $50 to provide a BPO and then sell the BPO for a profit.  A reviewed BPO would be sold for approximately $150 and an unreviewed BPO for approximately $70.41

 

67. Despite knowing the actual cost of a BPO is approximately $50, Ocwen routinely and repeatedly assesses borrowers BPO fees of $100 or more, representing a 100% mark-up, in clear violation of the mortgage contract.

 

68. Ocwen also assesses fees for services related to the examination of the title to

the property securing the loan, all of which are ordered through Altisource. These fees

typically appear as a “ Title Search” fee, a “ Title Report Fee,” or fees for “ FC Thru Title

Searches” on homeowners’ monthly statements.

 

69. Upon information and belief, the title examination fees assessed by Ocwen

are significantly marked-up. For example, a title search fee typically ranges between

$150 and $450.  Nevertheless, Ocwen routinely charges homeowners $829 for a “ Title

Search.”

 

70. Using its enterprise -- comprised of affiliated companies, like Altisource, and

third party “ property preservation” vendors -- and its automated mortgage loan

management system, Ocwen engaged in a scheme to fraudulently conceal and assess

unlawfully marked-up fees for default-related services on homeowners’ loan accounts,

cheating hundreds of thousands of borrowers out of hundreds of millions dollars.

Furthermore, to conceal its activities and mislead homeowners about the true nature of its

actions, Ocwen employed a corporate practice that omits the true nature of the fees that

are being assessed on homeowners’ loan accounts.  These practices are common to all of

Ocwen’ s files.

 

71. As a result of the practices of Ocwen’ s unlawful enterprise, hundreds of

thousands of unsuspecting borrowers are cheated out of millions of dollars.

[scorpioncapital]

For a mere transaction processor and technology provider they sure are prone to a lot of headaches!

To be fair, default management services were only 9% of service revenue (as a comparison closing and insurance was 24%). Seems everyone is going after their new , "alternative" income streams that are almost pure profit. Perhaps they should not have gotten into these lines at all. Together they are 1/3 of service revenue but something like 50% of net profits. It's almost a given in any industry that exorbitant profits attract attention and controversy.

(That's 50% of service profits, they have 2 other divisions generating around 35m or so in operating profit apparently)

 

[Ross812]

For a mere transaction processor and technology provider they sure are prone to a lot of headaches!

To be fair, default management services were only 9% of service revenue (as a comparison closing and insurance was 24%). Seems everyone is going after their new , "alternative" income streams that are almost pure profit. Perhaps they should not have gotten into these lines at all. Together they are 1/3 of service revenue but something like 50% of net profits. It's almost a given in any industry that exorbitant profits attract attention and controversy.

 

 

 

It seems like the above is shady, but is it illegal? I cannot believe Lawsky would not have gone after this. He surely would have discovered it...

[ItsAValueTrap]

It seems like the platform developed by Altisource was not properly setup to handle people who want to suddenly start paying certain things themselves instead of having it come out of escrow.

 

Part of the problem was in how MBS were created.  The people making MBS wanted to make them extremely diversified.  So, in every MBS, there is a lot of variation in mortgage contracts and payment terms and in the types of mortgages.

 

2- I didn't realize that Ocwen/Altisource can screw the mortgage investors by inflating the default-related servicing fees.

 

Ocwen has a duty to its shareholders to pay as little as possible for default-related servicing fees to reduce its advances.  Altisource wants lots and lots of fees.

[yadayada]

It says BPO's usually cost 30$, that is not true? When I google around it seems they cost between 50-150$. So 109$ seems fair? Basicly ASPS is the BPO manager, and a lot of these people who are evicted might leave the house in a bad state. In that case you need a interior BPO, and that is def not anything near 30$.. My guess is Erbey looked at BPO market rates, and made sure OCN paid that price or lower? If altisource would not exist, you would have to pay a BPO manager, and he would make a profit on contracting the BPO contractor. And the BPO contractor would charge 50-150$ (depending interior or not). The fact that ASPS is related to OCN does not matter here it seems.

 

My guess is, OCN is in a weak spot now, and they just target them, hoping they will settle for some amount?

 

This is very weird:

Although Ocwen assesses fees for BPOs on borrowers’ accounts in the range

  of $100 to $109, as of December 2010, under Fannie Mae guidelines, the maximum

  reimbursable rate for an exterior BPO was $80,35 and in practice, the actual cost was much

  less. According to the National Association of BPO Professionals, the actual cost of a

  BPO may be as little as $30.36

 

Ok so first they say, the cost of a external BPO goes as low as 30$... Failing to make a difference between internal and external (internal much cheaper). Second they say the maximum price for a external BPO is 80$, but again fail to make a dinstinction here between internal and external.

 

I can see how you would want to do a internal BPO if you kick people out of their homes...

 

FInally they only did something wrong if OCN profited (which did not happen) or if they overpaid ASPS (not illegal for ASPS to profit on this). But the latter is not clear at all from that statement. Unless it is illegal to charge homeowners for internal BPO's?

[Fat Pitch]

Erbey’s empire has more sleaze than your local strip club. It’s becoming obvious how this individual became a billionaire so quickly… now the chickens are coming home to roost  ::)

[yadayada]

Meh I don't think OCN did anything wrong here.

 

Internal BPO's cost between 100-175$. External between 30-100$. So if OCN charge about a 100$ on average, that seems in line.

 

Either they pay some unrelated contractor, or they pay ASPS. It is not relevant wether or not ASPS makes a profit here or not. Unless OCN actually overpaid. But that does not seem to be the case. Unless they paid mostly 100$ on average for external BPO's, which would be on the pricey side. But I doubt that if they bought the worst loans.. You probably want to check the inside of the house in a lot of cases.

 

Seems like those allegations are pretty weak, they even fail to mention internal BPO's.

[Fat Pitch]

Have you ever reached out to people in the mortgage business? Contact a couple realtors, brokers, mortgage bank secondary desks and ask them about Ocwen or Altisource/Hubzu. Incompetence and taking short cuts sums it up.

 

Erbey is wicked smart, but he’s a greedy SOB and needs to be reigned in.

[yadayada]

Im usually very careful listening to isolated bad or good commentary. For example you could find probably a hundred thousand people who had horrible experiences with mcdonalds, are they going out of business? Hell no. Same thing with that whole facebook debacle a while back. And same with those complaints, you could read 50  posts from different people with horrible experiences, but the stats say something else.

 

Does not mean you could not be right though. But just a few people saying bad things say absolutely nothing. I think Erbey has a statistical aproach to all this. Pray to god he is right, as I got over 10% in this thing.

[LC]

I agree with FP. I've seen this type of greed before, and want no part of it. Ocwen can't charge a markup but Altisource "can". It reminds me of another company I knew. Company A was the main company, Company B had the same owners, office, etc. A would provide scanning services of documents to clients. It would hire B to scan and save those docs. B charged A $15/doc. A charged the client $150 for that service as a "reimbursable". Sounds very similar to what is going on here.

[yadayada]

I agree with FP. I've seen this type of greed before, and want no part of it. Ocwen can't charge a markup but Altisource "can". It reminds me of another company I knew. Company A was the main company, Company B had the same owners, office, etc. A would provide scanning services of documents to clients. It would hire B to scan and save those docs. B charged A $15/doc. A charged the client $150 for that service as a "reimbursable". Sounds very similar to what is going on here.

yeah but they need a broker for these sort of things. So they either pay ASPS or some other company? And obviously there are market rates for these things, and those brokers want to make a profit. What would be bad is if OCN actually paid ASPS more then market rates, or if they made a profit on these things themselves (which they did not, the accusation is they overpaid). And it does not look like they overpaid.

 

Let's say ASPS has found a way to automate this and do it for cheaper. They are allowed to make a 100% profit on it, as long as they are not over charging for a service that OCN could potentially get somewhere else for a lower price. Nothing illegal about it, and I doubt they can get into serious trouble.

 

So if they did not overpay, you could not possibly expect ASPS to not make a profit on it. They are basicly a broker... And this is a business with market rates. If they found a lower cost way to do this, good for them. They get to keep more profit.

 

And at 100-109$, I don't see evidence OCN overpaid, if you google around, price go up to 175$ for these services.

 

http://www.trulia.com/voices/Market_Conditions/How_much_does_a_BPO_cost_Who_can_I_get_to_do_a_BP-135181

 

A BPO is a Broker Price Opinion. It is basically a Home Valuation - but not as detailed as an appraisal. A lot of banks will ask real estate agents to do BPO's so they have a "basic" valuation of a home to determine it's value in a short sale, or pending foreclosure situation. The banks usually pay a BPO Manager a fee of maybe $150 and then that company hires the local agent and pays them $50 - $75 to fill out their form. Many agents do this in hopes that they will get the listing in the future, but usually that will not happen and they are only doing it to make a few bucks. About 85% of the BPO's do not require that you go into the house. They only want the agent to drive by and make sure the house is in fact there, and not a total disaster.

If you are just looking for an opinion of value for your home I would call a real estate agent. Most agents will do a CMA for free in hopes of making a connection with you and gaining your business. In, NC, real estate agents are allowed to do CMA's (Comparative Market Analysis) but not BPO's, as they are competing with the Appraisers. So you should just ask for a CMA.

If you are looking for a BPO because you may have a short sale situation on your hands, your bank will order it. They will only accept them from certain vendors on their form and they would not ask you for one.

 

If you look at Zillow, you can get a pretty good Market Condition Trend graph for your area or an address.

 

I mean feel free to disagree, but please come up with a good argument if you do :) . Or better, some inside knowledge of the industry.

[Fat Pitch]

Im usually very careful listening to isolated bad or good commentary. For example you could find probably a hundred thousand people who had horrible experiences with mcdonalds, are they going out of business? Hell no. Same thing with that whole facebook debacle a while back. And same with those complaints, you could read 50  posts from different people with horrible experiences, but the stats say something else.

 

Does not mean you could not be right though. But just a few people saying bad things say absolutely nothing. I think Erbey has a statistical aproach to all this. Pray to god he is right, as I got over 10% in this thing.

 

I agree with you about focusing only on isolated experiences.

 

I work in the mortgage business so I know a lot of contacts so when I mentioned Ocwen to the company president at where I work at he went on an hour rant about them. What really concerned me is the IT department knowing the folks who used to work at Altisource and hearing their stories.

 

Altisource interests me because of their automation process, but having seen how processes change on the dime for mortgage banks due to regulations I’m not too sold on the concept. I’m figuring there’s tons of hidden liabilities related to programming mistakes.

[yadayada]

What really concerned me is the IT department knowing the folks who used to work at Altisource and hearing their stories.

You got any more info on that?

[scorpioncapital]

let's look at the mailing addresses:

 

Ocwen:

 

1000 Abernathy Rd Ste 210

ATLANTA, GA 30328-5606

United States

 

Altisource:

 

40, avenue Monterey

LUXEMBOURG, 2163

Luxembourg

 

Which entity do you think is going to get sued and regulated first?

Not saying it won't impact ASPS, but more indirectly.

 

 

 

[Fat Pitch]

What really concerned me is the IT department knowing the folks who used to work at Altisource and hearing their stories.

You got any more info on that?

 

I’m not going to divulge the details, but practically its shoddy programming work. Then again it’s the mortgage industry so you aren’t going to attract the best and brightest for software development.

 

To illustrate an example, the company I work at had to write out a massive check to borrowers since our IT programmer didn’t know how bank rounding worked according to FNMA standards.

[ItsAValueTrap]

Fat Pitch, who do you think the best and worst mortgage servicers are?

[jay21]

I'd like to hear people thoughts on NSM and WAC relative to OCN. Have people heard they are much better?

[ItsAValueTrap]

Here's how mortgage servicers stack up in terms of HAMP compliance.

 

http://www.sigtarp.gov/Audit%20Reports/SIGTARP_Mortgage_Transfers_Report.pdf

 

2- Other parties also rate the mortgage servicers.

 

Fannie Mae

Ratings agencies like Moody's

[Fat Pitch]

Fat Pitch, who do you think the best and worst mortgage servicers are?

 

I had good experiences dealing with Nationstar and Wells Fargo. What I mean by that is they are very well organized and competent. I've dealt with Homeward and they were okay until 2012 when Ocwen bought them.

 

Then out of the blue everything went to shit and they released guidelines that no one in the industry uses... people complain about Wells for being extremely picky when they purchase loans, but the new Homeward took it to another level. It's not like they were being extra conservative, but wanted new forms that no one else used. We stopped selling to them soon after.

[Fat Pitch]

The price of ASPS is just melting away. Even with how bad Ocwen is I’m sure they will be allowed to clean up their operations and after meeting some milestone be allowed to continue growing at some capacity. This “colonoscopy” by regulators will ensure they have the cleanest shop around.

 

With that said I closed my eyes and bought some ASPS.

[yadayada]

cooperman just unloaded ocn.

[investor-man]

cooperman just unloaded ocn.

 

Klarman just bought it

[Ross812]

8:31 am Altisource Portfolio Solutions acquires Owners.com for $20 mln (ASPS) : Co announces it has acquired the Owners.com business to expand Altisource's growing position in the residential real estate industry. The acquisition adds a flat-fee MLS service to Altisource's offerings, enabling the co to serve the fast-growing category of limited service home sellers. Owners.com will operate alongside Altisource's online real estate auction marketplace, Hubzu.com. Altisource purchased the company for $20 mln at closing and up to an additional $7 mln in potential consideration based on revenue earned.

 

We’ve reinvented For Sale By Owner, making it more effective for the consumer. We’ve leveled the playing field by providing FSBO buyers and sellers with the same tools professional agents use.

 

Owners.com is the largest flat-fee MLS network nationwide. We provide sellers access to the key professional listing boards necessary to market a home. Our affiliate brokerage, Owners Realty, Inc., is among the largest residential listing brokers in California and many other states.

 

For buyers who’ve done the work of finding and touring homes, we provide professional transaction support and a substantial cash payment at closing—usually around 1 percent of list price.

 

We’re committed to unlocking and streamlining the real estate process for consumers, helping them save money while buying or selling a home.

 

Owners.com is the largest for-sale-by-owner and Flat Fee MLS listing service nationwide. Owners.com has won numerous awards over the years including being the first real estate website named to PC Magazine's Top 100, Forbes' Best of the Web, Fast Company's Fast Forward Top List and best TV Commercial by Google's YouTube.

 

Owners.com website says they listed 14.5 billion in homes last year. Assuming an average of 300k home and $300 per home this is roughly $15M in revenue. 20% margins put this at 9x cash flow? Maybe I'm over estimating the revenue per home listed since they do have free options...

 

At first I was a little perturbed they would spend $27M when there stock price is so low and I would prefer buybacks, but this appears to marry with Hubzu really well. It looks like it should add 10-15c in EPS.