guowei58 Posted January 21, 2015 Share Posted January 21, 2015 Why does everything cite the national mortgage settlement as cover that OCN will not be a target of further state proceedings. NY signed the national mortgage settlement also...Did not stop them... NY DFS is not the same as NY AG. different agencies. I agree that agencies at other states can certainly come after OCN, similar to CA DBO...but their enforcement was weak historically. When was the last time you heard that CA DBO causing large businesses to liquidate? how about the Florida Office of Financial Regulation, Illinois Division of Banking, Texas Department of Savings and Mortgage Lending, Washington State Department of Financial Institution, Michigan Department of Insurance and Financial Services? As far as I can tell, these agencies make sure that licenses are paid up and current, and field customer complaints. Most settlements are in the amounts of $1,000 or few hundred bucks. Obviously these state agencies can change their behavior, copying NY DFS. So there is risk for sure, and hence the stock price reaction to CA DBO...Keep in mind that NY DFS has had a monitor at OCN for the last two years. Link to comment Share on other sites More sharing options...
Guest roark33 Posted January 22, 2015 Share Posted January 22, 2015 I get that they are different agencies. Just because OCN and any state AG signed the settlement does not mean that those same state AGs cannot come after OCN again. In fact, given the clear evidence and reward, it would seem highly plausible that the AG will claim that OCN violated the settlement agreement due to the mistakes discovered by NY DFS, and therefore require further payments by OCN to various states' homeowners. I would be interested to hear if anyone has any idea on whether bond investors can proactively force a change in the servicer under the Trust Indenture. The was a vague rumor about that today and I was wanting to learn more about that possibility. Any leads on a Trust Indenture that I could spend a day or two with, would be appreciated. Thanks.... Link to comment Share on other sites More sharing options...
jay21 Posted January 22, 2015 Share Posted January 22, 2015 I would be interested to hear if anyone has any idea on whether bond investors can proactively force a change in the servicer under the Trust Indenture. The was a vague rumor about that today and I was wanting to learn more about that possibility. Any leads on a Trust Indenture that I could spend a day or two with, would be appreciated. Thanks.... Yes, under some docs they can. Link to comment Share on other sites More sharing options...
ItsAValueTrap Posted January 22, 2015 Share Posted January 22, 2015 I would be interested to hear if anyone has any idea on whether bond investors can proactively force a change in the servicer under the Trust Indenture. The was a vague rumor about that today and I was wanting to learn more about that possibility. Any leads on a Trust Indenture that I could spend a day or two with, would be appreciated. Thanks.... somewhat relevant: http://www.ubs.wallst.com/ubs/mkt_story.asp?docKey=1329-L6N0US3Z6-1&first=0 QUOTE: Moody's downgraded the servicer rating of Ocwen to SQ3 from SQ3+ in October - breaching the minimum servicer rating of SQ3+ on some deals - and prompting the trustee - Wells Fargo - on a number of RMBS bonds in the MSAC and SABR series to ask bondholders is they wanted to replace Ocwen as a servicer. Link to comment Share on other sites More sharing options...
Guest roark33 Posted January 22, 2015 Share Posted January 22, 2015 "Other bonds have actually risen in value. The covered bid on the US$2.3m MSAC 2005-HE4 M2, also up for an investor vote on a servicing transfer, was in the low-to-mid 90s on January 7 up from its previous cover of a 91 handle on October 21." One theory on the rise in the bond values could be that hedge funds are buying the bonds in order to force a change in the servicer. If you think about the strategy, making a huge bet on the short side of OCN/ASPS will net a much larger return than any potential losses from the RMBS. Similar to a CDS strategy, buying the bonds to force a default, while also "over-insuring" the bonds you buy. Link to comment Share on other sites More sharing options...
mvalue Posted January 22, 2015 Share Posted January 22, 2015 "Other bonds have actually risen in value. The covered bid on the US$2.3m MSAC 2005-HE4 M2, also up for an investor vote on a servicing transfer, was in the low-to-mid 90s on January 7 up from its previous cover of a 91 handle on October 21." One theory on the rise in the bond values could be that hedge funds are buying the bonds in order to force a change in the servicer. If you think about the strategy, making a huge bet on the short side of OCN/ASPS will net a much larger return than any potential losses from the RMBS. Similar to a CDS strategy, buying the bonds to force a default, while also "over-insuring" the bonds you buy. I'm not clear why a short position would offset overpaying for an amount of RMBS that would materially impact much less end OCN/ASPS. That would take immense capital to make a dent against a comparatively small short position (given the market cap of the companies) Link to comment Share on other sites More sharing options...
guowei58 Posted January 22, 2015 Share Posted January 22, 2015 I get that they are different agencies. Just because OCN and any state AG signed the settlement does not mean that those same state AGs cannot come after OCN again. In fact, given the clear evidence and reward, it would seem highly plausible that the AG will claim that OCN violated the settlement agreement due to the mistakes discovered by NY DFS, and therefore require further payments by OCN to various states' homeowners. As i mentioned before, OCN can't violate the settlement agreement due to operational mistakes. Any mistakes, errors and omissions due to its servicing operation were released from civil and administrative actions by the state AGs. AGs could come after OCN criminally though. It seems like you're not making that nuance. So the question is whether you think OCN did something criminally... Link to comment Share on other sites More sharing options...
Guest roark33 Posted January 22, 2015 Share Posted January 22, 2015 I am not sure why you think all mistakes were released through the settlement. I am referring to ongoing mistakes, for example, the backdating of letters. A settlement for past errors doesn't give you cover on mistakes you make in the future. Link to comment Share on other sites More sharing options...
valueinvestor82 Posted January 22, 2015 Share Posted January 22, 2015 OCNs mortgages located in CA are heavily subprime. In one conversation with an analyst, we covered the risk of bond holders forcing a transfer, but the problem is 1) who could take that big of a block and actually have the capability of servicing such a large acquisition, and 2) how would that somehow make it better for the bondholders? Taking a "problem" from one hand and putting it in the other doesn't make it go away, and possibly more difficult to manage for regulators. John- I appreciate your response earlier about liquidation. I'm still trying to understand- if OCN sells the servicing rights already announced for $1.7 billion, and potentially pays all debt (leaving $100 million of net equity), how does the remaining business only result in $500 million or (number XYZ) when $1.7 billion is received for a portion generating less than half of revenue? I'm still trying to understand the logic that places the value under $15 or so. Thanks again for all of the contributions to the discussion, everyone. Link to comment Share on other sites More sharing options...
Guest roark33 Posted January 22, 2015 Share Posted January 22, 2015 Here is settlement with OTS back in 2004 when OCN was a bank. It gave up its banking license as a result of this. Just an interesting read to see how many of the same issues were present back then and not much has changed. http://www.occ.gov/static/ots/enforcement/93606.pdf Link to comment Share on other sites More sharing options...
Guest roark33 Posted January 22, 2015 Share Posted January 22, 2015 Valueinvestor82: The idea there isn't that you are making the situation any better with another servicer. The "trade" idea there is merely that removing a large block of MSRs from OCN would create a large return on a short position in OCN/ASPS. Link to comment Share on other sites More sharing options...
guowei58 Posted January 22, 2015 Share Posted January 22, 2015 I am not sure why you think all mistakes were released through the settlement. I am referring to ongoing mistakes, for example, the backdating of letters. A settlement for past errors doesn't give you cover on mistakes you make in the future. Anything could happen, but my interpretation (not legal advice) is the following. The national mortgage settlement effectively covers OCN for servicing mistakes, even beyond the settlement date, as long as OCN complies with the operating metrics specified by the settlement. 1) there is an implementation and compliance (related to servicing operating metrics) period specified by the national mortgage settlement, along with enforcement and cure provisions. Attached is the document. https://d9klfgibkcquc.cloudfront.net/Ocwen-Consent-Judgment-Ex-D.pdf. If the monitor finds noncompliance, he can introduce new servicing metrics and work with OCN on a corrective action plan. There are penalties outlined by the settlement if OCN doesn't cure failed metrics. My guess is that for all operational matters, the AGs have to follow this plan before going after OCN for another settlement. 2) This December press release by Florida AG is important in supporting this point. http://www.myfloridalegal.com/newsrel.nsf/newsreleases/BAA251FB24B1EABC85257DB00050CEA7. Bondi and 5 other AGs (these are the lead AGs on the settlement) are investigating whether OCN misled or provided false information in its compliance with the settlement. But the key takeaway is that they are leaving the operational compliance to the monitor. So despite sloppy processes discovered after the settlement date (letter backdating issues, etc.), the AGs continue to operate within the settlement framework for operational issues and chose to focus on things they can prosecute, which is fraudulent activities. 3) My theory is this: for the state AGs to come back to OCN for a second settlement based on their sloppy processes/errors, they need to first make sure OCN fails the operating metrics in the initial settlement and is unable to cure. If OCN actually complies with the metrics, the state AGs do not have credible argument to ask for more money since OCN meets the requirements already. A reasonable judge would naturally ask the question to the state AGs "if OCN complied with the metrics in your settlement, explain why you are still asking for more money?" and "if these newly discovered sloppy processes harmed borrowers, why did OCN still comply with the metrics?" Keep in mind that the AGs need to prove that these sloppy processes harmed borrowers... This is my understanding currently. Obviously there are lots of unanswered questions, but as I mentioned before, you need to ask whether OCN is conducting fraud before arriving at a disaster scenario. Also, you need to handicap OCN's ability to cure their sloppy processes so that they meet the servicing metrics outlined by the settlement. Anyway, I'm not arguing for certainty on this topic as I have a hard time understanding what's actually going on with OCN's processses, but I think the conclusion that the state AGs are definitely coming for a second bite at the apple is too absolute without having an opinion on the likelihood of fraud. If they misled regulatory authorities, then we're in a different ball game. Link to comment Share on other sites More sharing options...
Guest roark33 Posted January 22, 2015 Share Posted January 22, 2015 Thanks for your thoughts guowei58. I guess my thinking is that we currently have two data points: 1. Ocwen has not provided full disclosure to the ongoing requests by CA DBO. We can't infer anything conclusively from this, but you have to question OCN's competence or integrity when they push this non-disclosure so far that CA, their biggest state, threatens to revoke their license. Even on the day of the LA Times article, OCN put out a press release saying they were cooperating fully, only to have the California spokesman come out and immediately say, No, they are not. Very childish.... 2. The National Monitor, see video link below, has said that he found the whistleblower credible and is therefore questioning the self-disclosure by OCN in the ongoing monitoring by his office. In other words, OCN has either not disclosed documents (CA) or provided untruthful documents (National Monitor). Both of these claims suggest to me that their practices are either fraudulent or so poor that they are worried about future regulatory actions so as to not disclose or misrepresent to various regulatory bodies. Link to comment Share on other sites More sharing options...
guowei58 Posted January 22, 2015 Share Posted January 22, 2015 Thanks for your thoughts guowei58. I guess my thinking is that we currently have two data points: 1. Ocwen has not provided full disclosure to the ongoing requests by CA DBO. We can't infer anything conclusively from this, but you have to question OCN's competence or integrity when they push this non-disclosure so far that CA, their biggest state, threatens to revoke their license. Even on the day of the LA Times article, OCN put out a press release saying they were cooperating fully, only to have the California spokesman come out and immediately say, No, they are not. Very childish.... 2. The National Monitor, see video link below, has said that he found the whistleblower credible and is therefore questioning the self-disclosure by OCN in the ongoing monitoring by his office. In other words, OCN has either not disclosed documents (CA) or provided untruthful documents (National Monitor). Both of these claims suggest to me that their practices are either fraudulent or so poor that they are worried about future regulatory actions so as to not disclose or misrepresent to various regulatory bodies. Fair enough. If your conclusion is that there is fraud going on at OCN, then OCN is probably worth a lot less. Link to comment Share on other sites More sharing options...
guowei58 Posted January 23, 2015 Share Posted January 23, 2015 http://www.dfi.wa.gov/sites/default/files/consumer-services/enforcement-actions/C-13-1153-14-CO01.pdf?q=CS%20Orders/C-13-1153-14-CO01.pdf Above is a document that the state mortgage agencies (CA DBO and others) have signed with OCN along with the National Mortgage Settlement at the end of 2013. This document ties enforcement actions by these state agencies with the National Mortgage Settlement and OCN's ability to meet operating metric requirements. NY DFS wasn't a party to this agreement, but almost every other state is included... Link to comment Share on other sites More sharing options...
Guest roark33 Posted January 23, 2015 Share Posted January 23, 2015 I mentioned hedge funds trying to force a change in servicer for their short position. http://www.prnewswire.com/news-releases/bluemountain-capital-management-llc-delivers-notice-of-default-on-certain-notes-to-trustee-of-the-hlss-servicer-advance-receivables-trust-300024840.html Link to comment Share on other sites More sharing options...
mvalue Posted January 23, 2015 Share Posted January 23, 2015 I mentioned hedge funds trying to force a change in servicer for their short position. http://www.prnewswire.com/news-releases/bluemountain-capital-management-llc-delivers-notice-of-default-on-certain-notes-to-trustee-of-the-hlss-servicer-advance-receivables-trust-300024840.html Wow, great call on this. The 3% interest rate boost in event of default explains my prior question on putting capital at risk in RMBS - you theoretically have nice upside on both the short and long. I am skeptical it will actually work, but if it did and others repeated the move it obviously could end OCN. Link to comment Share on other sites More sharing options...
ItsAValueTrap Posted January 23, 2015 Share Posted January 23, 2015 I mentioned hedge funds trying to force a change in servicer for their short position. http://www.prnewswire.com/news-releases/bluemountain-capital-management-llc-delivers-notice-of-default-on-certain-notes-to-trustee-of-the-hlss-servicer-advance-receivables-trust-300024840.html Wow, great call on this. The 3% interest rate boost in event of default explains my prior question on putting capital at risk in RMBS - you theoretically have nice upside on both the short and long. I am skeptical it will actually work, but if it did and others repeated the move it obviously could end OCN. The first sentence of the press release refers to debt that HLSS issued in 2012 and 2013 that is secured by servicing advances: NEW YORK, Jan. 23, 2015 /PRNewswire/ -- BlueMountain Capital Management, LLC, the investment manager of funds that hold certain Series 2012-T2 and Series 2013-T3 Notes issued in connection with the HLSS Servicer Advance Receivables Trust (the "HSART Trust"), today announced that it has sent the letter below to the trustee of the HSART Trust. Later on the press release talks about: BlueMountain also has directed the trustees of certain of the RMBS Certificates to investigate and/or take action with respect to Ocwen Loan Servicing, LLC. Only the second part really talks about removing Ocwen as a servicer. It may not even be talking about removing Ocwen as a servicer. There are other reasons why you might talk to the trustee, e.g. if you argue that Ocwen didn't live up to its servicing agreement and should do a better job. maybe their investor reporting is bad or they aren't reporting everything or whatnot. It looks like the trade here is long debt and short equity, so you're playing the mispricings between the two. It doesn't seem to me that BlueMountain is trying to remove Ocwen as the servicer? Link to comment Share on other sites More sharing options...
mvalue Posted January 23, 2015 Share Posted January 23, 2015 Agree but if the 3% terms exist on other paper and it's pursuable and pursued with OCN it's a problem I mentioned hedge funds trying to force a change in servicer for their short position. http://www.prnewswire.com/news-releases/bluemountain-capital-management-llc-delivers-notice-of-default-on-certain-notes-to-trustee-of-the-hlss-servicer-advance-receivables-trust-300024840.html Wow, great call on this. The 3% interest rate boost in event of default explains my prior question on putting capital at risk in RMBS - you theoretically have nice upside on both the short and long. I am skeptical it will actually work, but if it did and others repeated the move it obviously could end OCN. The first sentence of the press release refers to debt that HLSS issued in 2012 and 2013 that is secured by servicing advances: NEW YORK, Jan. 23, 2015 /PRNewswire/ -- BlueMountain Capital Management, LLC, the investment manager of funds that hold certain Series 2012-T2 and Series 2013-T3 Notes issued in connection with the HLSS Servicer Advance Receivables Trust (the "HSART Trust"), today announced that it has sent the letter below to the trustee of the HSART Trust. Later on the press release talks about: BlueMountain also has directed the trustees of certain of the RMBS Certificates to investigate and/or take action with respect to Ocwen Loan Servicing, LLC. Only the second part really talks about removing Ocwen as a servicer. It may not even be talking about removing Ocwen as a servicer. There are other reasons why you might talk to the trustee, e.g. if you argue that Ocwen didn't live up to its servicing agreement and should do a better job. maybe their investor reporting is bad or they aren't reporting everything or whatnot. It looks like the trade here is long debt and short equity, so you're playing the mispricings between the two. It doesn't seem to me that BlueMountain is trying to remove Ocwen as the servicer? Link to comment Share on other sites More sharing options...
Picasso Posted January 23, 2015 Share Posted January 23, 2015 Great call roark. It has been interesting to watch people downplay a lot of the issues behind the Erbey complex. In hindsight those talking about selling $12.5 puts were not getting adequately compensated for the risk. I saw some "lol's" at how absurd those put premiums were. I haven't heard anyone mention the impact interest rates will have on the book value behind the MSR's. There are going to be prepays out the wazoo at the same time OCN is effectively blocked from purchasing new MSR's. You literally have everything working against these stocks. That would normally get me interested but geez you can't go a week without some terrible news for one part of Erbey's empire. I was about half a point away from getting the OCN bonds at 80 and I currently see them offered at 82.5. This has turned into a big boys game and I am definitely staying away. Glad I didn't get filled. Link to comment Share on other sites More sharing options...
mvalue Posted January 23, 2015 Share Posted January 23, 2015 Great call roark. It has been interesting to watch people downplay a lot of the issues behind the Erbey complex. In hindsight those talking about selling $12.5 puts were not getting adequately compensated for the risk. I saw some "lol's" at how absurd those put premiums were. I haven't heard anyone mention the impact interest rates will have on the book value behind the MSR's. There are going to be prepays out the wazoo at the same time OCN is effectively blocked from purchasing new MSR's. You literally have everything working against these stocks. That would normally get me interested but geez you can't go a week without some terrible news for one part of Erbey's empire. I was about half a point away from getting the OCN bonds at 80 and I currently see them offered at 82.5. This has turned into a big boys game and I am definitely staying away. Glad I didn't get filled. I do think the subprime should have less of an issue with prepays, but yes not nothing... Link to comment Share on other sites More sharing options...
redwood Posted January 23, 2015 Share Posted January 23, 2015 http://www.bloomberg.com/news/2015-01-23/bluemountain-says-ocwen-affiliate-defaulted-on-debt-securities.html Keefe Bruyette & Woods Inc. analysts led by Bose George wrote in a report Friday that “there are likely to be strong legal defenses to the argument being put forward by BlueMountain.” It is clearly difficult to understand the amount of risk here. Link to comment Share on other sites More sharing options...
redwood Posted January 23, 2015 Share Posted January 23, 2015 http://www.forbes.com/sites/antoinegara/2015/01/23/ocwen-financial-keeps-california-mortgage-license-in-regulatory-settlement/?partner=yahootix what a joke...2.5M fine. Link to comment Share on other sites More sharing options...
Guest roark33 Posted January 23, 2015 Share Posted January 23, 2015 Ocwen received a mixed bag of news. Settled with California for 2.5m and then gets sued by bondholders of RMBS Trusts. Notice the mark-ups of fees between affiliate companies... http://www.reuters.com/article/2015/01/23/us-ocwen-mortgages-exclusive-idUSKBN0KW2IN20150123?feedType=RSS&feedName=businessNews Link to comment Share on other sites More sharing options...
ItsAValueTrap Posted January 24, 2015 Share Posted January 24, 2015 So the lawsuit from Gibbs and Bruns: http://www.gibbsbruns.com/certificateholders-issue-notice-of-non-performance-identifying-alleged-failures-by-ocwen-financial-corporation-as-servicer-or-master-servicer-to-perform-covenants-and-servicing-agreements-in-119-residential-mortgage-backed-securities-trusts-01-23-2015/ Regulators attack Ocwen for being consumer-unfriendly. To some degree, this lawsuit does the opposite. It attacks Ocwen for giving out too many loan mods (which is good for consumers). Such is life! Anyways, maybe this lawsuit has merit and maybe it doesn't. Some of the things will be difficult to prove. Employing conflicted servicing practices that enriched Ocwen’s corporate affiliates, including Altisource and Home Loan Servicing Solutions, to the detriment of the Trusts, investors, and borrowers; I don't think Ocwen pays above-average rates for default-related services. Lawsky doesn't seem like he found much on that front. However, the force-placed insurance stuff might leave Ocwen exposed if the lawyers are really smart and figure it out. --- I have not read the PSAs for the 119 RMBS trusts. However, the pooling and servicing agreements may be favorable to the servicer. Link to comment Share on other sites More sharing options...
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