OCN - Ocwen Financial

[Guest roark33]

Any one have a copy the lawsuit referenced in this story by NPR?

 

http://www.npr.org/2014/11/18/364131391/firm-accused-of-illegal-practices-that-push-families-into-foreclosure

 

Phyllis Nugent and Chad Hopkins appear to be the plaintiffs. 

 

Attorneys--PACER or Lexis access?

[yadayada]

If you read around on the internet you can find a lot more horror stories.

 

It seems OCN has less fuck ups then the rest, and is overall better for homeowners. But when they do fuck up, they are horror stories for the homeowners it seems. That is really something Erbey has to do something about.

 

 

[Guest roark33]

I have read a lot of the lawsuits, some seem procedural, some seem like ambulance chasers.  The story on NPR made it appear that this one had some substantive merit and was wanting to dig into the details.  I did find a lawsuit dating back to 2012 when Deutsche Bank had tried to foreclosure on this same couple.  The judge did not speak to highly of them in his remarks.

[Guest roark33]

Here is the complaint from the attorney.  Have not read it yet, will give my summary afterwards....

2014.09.22_-_D1_-_Complaint-2.pdf

[Ross812]

Here is the complaint from the attorney.  Have not read it yet, will give my summary afterwards....

 

I read the complaint.

 

A couple in Illinois got a sub prime loan in 2002. There was never an escrow account established for the loan. The couple paid their own homeowners insurance starting in 2002. With no escrow account, the couple and the servicer "Litton" did pay property taxes. There was a loan modification from 9% IR to 8% in 2005. I'm not sure how this plays into the case.

 

In June of 2011 Litton caught the mistake. Apparently they had been paying property taxes from payments or perhaps they had never been paid? Litton informed the borrowers 7K was due before September 2011 in order to make their loan current. Ocwen bought Litton and closed the deal in September 2011.

 

The couple had not paid the 7k by the deadline of September '11 and Ocwen refused to take payments at this time upon assuming responsibility for their loan. Ocwen did not establish an Escrow and started the process of forclosure. The complaints are Ocwen bought force placed insurance even though they were notified quarterly of the borrowers current insurance, and that Ocwen tacked on excessive fees for BPO and Inspections. 

 

The interesting thing is the borrowers were still in their house at the end of 2013. 27 months after Ocwen stopped accepting payments and 19 months after Deutche Bank filed their foreclosure complaint (June '12).

 

The lawsuit says Ocwen by their purchase of Litton failed to establish and escrow account and pay property taxes and insurance as required by law which lead to a property tax bill the borrower could not pay and subsequent foreclosure of the property. The suit also states that Ocwen assessed unlawful fees to the borrower and attempted to collect them illegally.

 

If (a) Borrower fails to perform the covenants and agreements contained in this Security

Instrument…then Lender may do and pay for whatever is reasonable or appropriate to

protect Lender’s interest in the Property and rights under this Security Instrument,

including protecting and/or assessing the value of the Property, and securing and/or

repairing the Property. Lender’s actions can include, but are not limited to: (a) paying any

sums secured by a lien which has priority over this Security Instrument; (b) appearing in

court; and © paying reasonable attorneys’ fees to protect its interest in the Property

and/or rights under this Security Instrument…

Any amounts disbursed by Lender under this Section 9 shall become additional debt of

Case 9:14-cv-81197-WJZ Document 1 Entered on FLSD Docket 09/22/2014 Page 25 of 43

-26- CLASS ACTION COMPLAINT

 

Borrower secured by this Security Instrument. These amounts shall bear interest at the

Note rate from the date of disbursement and shall be payable, with such interest, upon

notice from Lender to Borrower requesting payment.

Lender may charge Borrower fees for services performed in

connection with Borrower’s default, for the purpose of protecting Lender’s

interest in the Property and rights under this Security Instrument,

including, but not limited to, attorneys’ fees, property inspection and

valuation fees…[l]ender may not charge fees that are expressly prohibited

by this Security Instrument or by Applicable Law.

 

Summary of charges:

 

In October, 2011, Ocwen sent Plaintiffs a monthly statement dated October 17,

2011 seeking to collect the following default and foreclosure fees:

 “Prev-Property Inspection Fee” in the amount of $10.50; and

 “Prev-Property Valuation Expense” in the amount of $100.00.

 

dated August 17,

2012, seeks to collect the following fees and charges:

 “Prev-FC Thru Title Searches” in the amount of $500.00;

 “Prev-Property Inspection Fee” in the amount of $63.00;

 “Prev-Property Valuation Expense” in the amount of $220.00; and

 “Prev-Title Report Fee” in the amount of $300.00.

 

151. A monthly statement Ocwen sent to Plaintiffs dated February 18, 2013, several

months after Deutsche Bank filed its foreclosure complaint, seeks to collect the following fees

and charges:

 

 “Prev-Court” in the amount of $350.00;

 “Prev-FC Thru Service Complete” in the amount of $585.00;

 “Prev-FC Thru Title Searches” in the amount of $500.00;

 “Prev-Lis Pendens/NOPA” in the amount of $57.00;

 “Prev-Property Inspection Fee” in the amount of $94.50;

 “Prev-Property Valuation Expense” in the amount of $330.00;

 “Prev-Special Process” in the amount of $280.00; and

 “Prev-Title Report Fee” in the amount of $375.00.

 

It does not appear the borrowers were paying their mortgage or any of the fees assessed by Ocwen when they were due. It appears like many of these services were completed multiple times over the course of this lengthy foreclosure.

 

The borrowers are still in their home as of 9/22/2014

 

162. On June 4, 2012, Deutsche Bank filed its foreclosure complaint against Plaintiffs.

163. The foreclosure complaint contains a “Statement as to Defaults,” claiming, [t]he

Mortgage is in default due to the failure of the mortgagor(s) to pay the monthly installments of

principal, interest, and taxes, from June 1, 2011, through the present. There remains an

outstanding principal balance of $99,067.64 with interest accruing on the unpaid principal

balance at $21.71 per day, plus attorneys fees, foreclosure costs, late charges, advances, and

expenses incurred by the Plaintiff as a result of the default.” Exhibit G, ¶10(j).

164. The foreclosure complaint provides no breakdown or explanation of the amounts

Deutsche Bank is claiming are due.

165. Plaintiffs have been in the process of defending against Deutsche Bank’s

foreclosure complaint.

166. As of the date that this action was filed, no judgment has been entered regarding

Deutsche Bank’s foreclosure complaint.

167. Plaintiffs have made every effort to avoid losing their home where they are

raising their children and in which they have invested in its upkeep and improvement over the

past 12 years.

 

It appears the lawsuit is being brought because the borrowers feel it is Ocwen's fault they are in this mess. Also, they do not feel they owe all the fees OCN has tacked on.  My thoughts are OCN probably inspects the property and update BPO on a regular interval once foreclosure proceedings start. All the title and court costs are probably requested by the mortgage holder.

[rukawa]

That is really something Erbey has to do something about.

Erbey has been around the block a number of times. He is not new to this. I am sure he is doing things about it. But to a certain extent I think this is an intrinsic risk of this type of business.

 

 

[Guest roark33]

The question you have to answer is whether this is an intrinsic risk of the business or it is brought on by the bad actions of the players in the industry.  I am not sure I have a good answer to this question.

[yadayada]

seems like it is hard for the computer to make a dinstinction between low lifes not paying their mortgages and a honest mistake. Sort of like how if you instruct a AI system to protect a certain group of humans, the computer will think the easiest way to lock them in a cage and feed them regularly.

 

I guess that is the risk if you automate these things.

 

Computer sees: couple needs to pay 7k$. Couple does not pay 7k$, kick them out! Couple protests, call centre worker listens, but is paid very little and sees there is no script in place for this situation so just tells them to pay. And does not really care what happens eitherway because is paid v little.

 

And their dumb call centre workers are just following what the machine says. And there is no algorithm in place to process these special situations where some uncommon mistake has been made. It is either pay or kick out if they don't pay.  And call centre workers might see it, but don't care since they get paid very little and are not trained to really deal with it.

 

It seems a lot of these things can be corrected over time, and are probably just bugs in the system? They just add another algorithm each time a unique situation like this is discovered and over time mistake ratio goes to zero?

[scorpioncapital]

Actually Erbey is repeating a pattern of behaviour that he had with the S&L's in the 90s. I was reading an article about him where he got burned by regulation in the bank sector and vowed to operate in the non-bank sector and now it's the same thing again as the non-bank sector is becoming a new-new bank sector for regulators. It's either the business nature and/or the company is too close to grey area tactics. My opinion? The talk about technology and the engine that is used by reps in India to lower costs is 50% true and 50% not true. The 50% that is not true represents profits that are open to scandal. Therefore if that 50% expense margin closes, costs will go up 50%. They may still be cheaper than the competitors, but it will reduce profits. I think the current market price reflects that in part.

[yadayada]

Thing is though, his system is basicly an AI. It gets triggers and then spits x step solutions to lowly educated cheap workers dictated by algorithms (that are made by a team of psychologists). And to build a good AI costs time. And they tend to get better over time. So Im not sure if we should compare Erbey now vs Erbey 10 years back.

 

It basicly is recognizing a certain pattern and then unleashing a script on it. So the weakness in a system like that is two fold, ability to detect the problem, so it gets the right script, and the process to fix it. It is really stupid, but over time for a boring business like servicing, should become close to perfect if it is constantly improved. That is also their moat if the cost advantage does not get slaughtered in the short term before this can happen.

[Guest roark33]

The key question isn't whether Ocwen has a low cost advantage, the question is whether that advantage is built on practices that are not allowed.  Is not escrowing money for insurance/taxes a mistake in the computer system or specifically designed to hit the customer with late fees...

 

 

[rukawa]

The question you have to answer is whether this is an intrinsic risk of the business or it is brought on by the bad actions of the players in the industry.  I am not sure I have a good answer to this question.

 

Actually you don't have to answer that question. The outcome is the same regardless. It could be that Erbey is out to cheat poor house owners. It that case the regulator will screw Ocwen. Or it could happen that Erbey is being taken advantage of by unscrupulous low lifes. In that case the regulator will screw Ocwen. Both cases the regulator screws Ocwen regardless of the bad actions of the players in the industry or bad actions of homeowners.

 

My view is that if your business is foreclosing on poor people who can't pay their mortgage then regulatory fines and vilification are an inherent cost of doing business regardless of what you do.

 

I realize now that the ultimate catalyst for Ocwen is a Republican president.

[johngu]

A bigger picture question away from the near-term regulatory uncertainties.  A big part of the thesis about OCN is that the new Basel III rules will force banks to unload MSA's.  There's been some protests by banks and the ABA (American Bankers Association).  My question here is how "firm" the rules are?  Are they pretty much set in stone at this point?  Is there a chance that the rules could be modified to allow better treatment of MSAs?  And if so, will banks choose to retain MSAs or still sell them to the non-bank servicers as the latter is more efficient?

[rukawa]

"My question here is how "firm" the rules are?  Are they pretty much set in stone at this point?  Is there a chance that the rules could be modified to allow better treatment of MSAs? "

 

I don't see any indication that fighting this is really important for banks. And some banks like JPM have made it clear that they want to get out of the business because its a huge headache. In addition I don't see Basel III rules changing. THey are a voluntary standard and also an international one. I don't think anyone wants to revisit it. If anything I see the Fed making the rules stricter than Basel and the proposed Basel 4 is stricter as well. I doubt banks will retain their MSAs. I think the big picture is essentially correct.

 

One thing I have been thinking about is that this may be the optimal time to buy Ocwen. Basically as the country moves away from Democratic policies you will see less business bashing,  not more of it.  We may be in a period of peak regulatory risk.

[ItsAValueTrap]

I realize now that the ultimate catalyst for Ocwen is a Republican president.

Their current problems stem from New York, not the federal government.

 

A bigger picture question away from the near-term regulatory uncertainties.  A big part of the thesis about OCN is that the new Basel III rules will force banks to unload MSA's.  There's been some protests by banks and the ABA (American Bankers Association).  My question here is how "firm" the rules are?  Are they pretty much set in stone at this point?  Is there a chance that the rules could be modified to allow better treatment of MSAs?  And if so, will banks choose to retain MSAs or still sell them to the non-bank servicers as the latter is more efficient?

 

The banks have a limit on how much in intangible assets they can hold.  Above a certain threshold, they have to hold a lot of capital against MSRs.  This will reduce the banks' returns because they cannot leverage the MSRs.

 

http://www.robertstoweengland.com/index.php/writer/1357-basel-iiis-chilling-effect-on-servicing.html

 

Ocwen's view is that the banks will retain a lot of the MSRs on prime mortgage pools that they originate. 

 

(my opinion)

If the banks only originate QM mortgages (QM is a set of rules that tries to ensure that the borrower can afford the mortgage), they they're pretty much only originating safe mortgages to prime borrowers.  So the delinquency rates on the MSRs will be low and the MSRs won't be that difficult to service.  They might hang onto these servicing rights because transferring the servicing costs money.  There might be strategic opportunities for the banks if they hold onto the MSRs.  For example, they can make additional money by refinancing mortgages that they service.

 

The banks will likely try to shed MSRs with lots of subprime and lots of delinquency.  They probably aren't making much money on those.  By selling them to Ocwen (and its competitors which are likely overpaying for them), they get more value out of the MSRs.  It arbitrages the cost of servicing between Ocwen and a big bank.  When Ocwen buys the MSR, it will eat some one-time costs as it transfers mortgages from one platform to another.  Some borrowers may get lost in the process and there's headaches when Ocwen makes mistakes like accidentally force-placing insurance onto somebody who pays their own insurance.  But once that integration is done, Ocwen has various cost advantages such as lower-cost offshore labour.

[johngu]

I realize now that the ultimate catalyst for Ocwen is a Republican president.

Their current problems stem from New York, not the federal government.

 

A bigger picture question away from the near-term regulatory uncertainties.  A big part of the thesis about OCN is that the new Basel III rules will force banks to unload MSA's.  There's been some protests by banks and the ABA (American Bankers Association).  My question here is how "firm" the rules are?  Are they pretty much set in stone at this point?  Is there a chance that the rules could be modified to allow better treatment of MSAs?  And if so, will banks choose to retain MSAs or still sell them to the non-bank servicers as the latter is more efficient?

 

The banks have a limit on how much in intangible assets they can hold.  Above a certain threshold, they have to hold a lot of capital against MSRs.  This will reduce the banks' returns because they cannot leverage the MSRs.

 

http://www.robertstoweengland.com/index.php/writer/1357-basel-iiis-chilling-effect-on-servicing.html

 

Ocwen's view is that the banks will retain a lot of the MSRs on prime mortgage pools that they originate. 

 

(my opinion)

If the banks only originate QM mortgages (QM is a set of rules that tries to ensure that the borrower can afford the mortgage), they they're pretty much only originating safe mortgages to prime borrowers.  So the delinquency rates on the MSRs will be low and the MSRs won't be that difficult to service.  They might hang onto these servicing rights because transferring the servicing costs money.  There might be strategic opportunities for the banks if they hold onto the MSRs.  For example, they can make additional money by refinancing mortgages that they service.

 

The banks will likely try to shed MSRs with lots of subprime and lots of delinquency.  They probably aren't making much money on those.  By selling them to Ocwen (and its competitors which are likely overpaying for them), they get more value out of the MSRs.  It arbitrages the cost of servicing between Ocwen and a big bank.  When Ocwen buys the MSR, it will eat some one-time costs as it transfers mortgages from one platform to another.  Some borrowers may get lost in the process and there's headaches when Ocwen makes mistakes like accidentally force-placing insurance onto somebody who pays their own insurance.  But once that integration is done, Ocwen has various cost advantages such as lower-cost offshore labour.

 

Thanks for your input.  It seems like banks have a incentive to shed MSR's associated with delinquent or troubled loans regardless of Basel III rules that increase the cost of capital associated with MSA's.  Namely, banks are not efficient as servicing these types of loans, and there's the headline risk of negative publicity (although we do see the same risks manifesting for non-bank servicers who focus on sub-prime loans, as they are easy targets for bureaucrats and politicians).

 

Given that the non-bank servicers focus on sub-prime loans, how will the market for these loans look over the coming years?  It seems like loan underwriting standards are very very tight these days, so I imagine most of the loans that are originated are considered "prime" and can be held onto by the banks?  Anyone know where to look for this data?  I did some googling but couldn't find exactly what I was looking for.

 

Also, anyone have Ocwen's quarterly call presentation slides for the last few quarters?  It seems like they've removed them from their IR page.

[ItsAValueTrap]

Given that the non-bank servicers focus on sub-prime loans, how will the market for these loans look over the coming years?  It seems like loan underwriting standards are very very tight these days, so I imagine most of the loans that are originated are considered "prime" and can be held onto by the banks?  Anyone know where to look for this data?  I did some googling but couldn't find exactly what I was looking for.

There are new rules about QM or qualified mortgages.  Basically, the banks have to make sure that their mortgages are affordable.  If it turns out that their loan is not a QM loan, there are some consequences.  So I think there will be less lending and the banks will put out fewer risky loans.

 

You're allowed to do non-QM loans but not many people are doing them now. 

 

Schwab has partnered with Quicken loans to offer interest-only loans... so they're doing riskier lending.

 

Also, anyone have Ocwen's quarterly call presentation slides for the last few quarters?  It seems like they've removed them from their IR page.

You might try using archive.org to look at the past webpages.  I think the old links will still work.

[ItsAValueTrap]

Ocwen gives their CFO a raise.

 

http://www.sec.gov/Archives/edgar/data/873860/000087386014000022/a201412058-kexecutivecompe.htm

Item 5.02(e)    On December 2, 2014, the Compensation Committee of the Board of Directors of Ocwen Financial Corporation (the “Company”) approved an increase in the annual base salary of the Company’s Chief Financial Officer, Michael R. Bourque, Jr., to $450,000 and an increase in his target incentive payment opportunity to $450,000, dependent on performance. Such increases are effective as of January 1, 2015 and were made in light of the value to the Company of Mr. Bourque’s expected performance going forward.

[pocoapoco]

Do we know how much of an increase this is?

Perhaps the CFO is exercising some leverage since it would not be a great time for OCN to have him quit during this scrutiny.  That's assuming the change in comp is unusually high.

[ItsAValueTrap]

He was hired recently so he doesn't show up in the DEF 14A.

 

http://www.sec.gov/Archives/edgar/data/873860/000144530514002228/ocn_8k.htm

Pursuant to his employment arrangement, Mr. Bourque will receive an annual base salary of $400,000 and is eligible to participate in the Company’s 1998 Annual Incentive Plan, as amended, with a target incentive bonus opportunity of $400,000, dependent on performance. Mr. Bourque will receive a cash bonus of $100,000, half payable on the date Mr. Bourque relocates to the U.S. Virgin Islands (“USVI”) and half payable on April 28, 2015, the first anniversary of Mr. Bourque’s employment with Ocwen. Mr. Bourque has received the following equity awards under the Company’s 2007 Equity Incentive Plan:

(1) 10,000 restricted shares of the Company’s common stock (the “Common Stock”), which vest, subject to certain conditions and limitations, in three equal annual increments commencing on April 28, 2015 and

(2) options to purchase 100,000 shares of Common Stock for a purchase price of $37.12 per share (the “Options”), which vest, subject to certain conditions and limitations, as follows:

(a) one-fourth of the Options vest in four equal annual increments commencing April 28, 2015,

(b) one-half of the Options vest in four equal annual increments commencing on the date as of which the Company’s stock price equals or exceeds $74.24 with a 20% or greater annualized rate of return in the stock price measured from April 28, 2014 and

© one-fourth of the Options vest in four equal annual increments commencing on the date as of which the Company’s stock price equals or exceeds $111.36 with a 25% or greater annualized rate of return in the stock price measured from April 28, 2014. Mr. Bourque also will be eligible to receive benefits under the USVI Relocation Program at the executive vice president level and participate in the Ocwen Mortgage Servicing, Inc. Amended and Restated 2013 Preferred Stock Plan upon his relocation to the USVI.

[physdude]

More bad news - http://seekingalpha.com/news/2180635-ocwen-in-sights-of-another-regulator.

[Fat Pitch]

Here’s the link to the monitor’s report:

https://www.jasmithmonitoring.com/omso/wp-content/uploads/sites/4/2014/12/Pldg-194-Monitor%E2%80%99s-Interim-Report-re-Ocwen-Loan-Servicing.pdf

 

Quick Summary:

 

Whistle blower in IRG group went to the monitor alleging incompetent management, and understaffed workers. Monitor will bring on McGladrey to review everything themselves. Seems like Ocwen is throwing everything they got at resolving this issue. I underlined some key statements.

 

"Scope of Engagement. McGladrey has been engaged to re-perform, under

my direction but working closely with the IRG, the loan testing population identification14 and

sample selections, and testing of the following Metrics for Test Period 7 and Test Period 8:

 

• Metric 1 (1.A) (Foreclosure Sale in Error);

• Metric 2 (1.B) (Incorrect Loan Modification Denial);

• Metric 12 (5.A.) (Third Party Vendor Management);

• Metric 19 (6.B.i) (Loan Modification Document Collection Timeline Compliance);

• Metric 20 (6.B.ii) (Loan Modification Decision/Notification Timeline Compliance);

• Metric 23 (6.B.v) (Short Sale Document Collection Timeline Compliance);

• Metric 24 (6.B.vi) (Charge of Application Fees for Loss Mitigation); and

• Metric 29 (6.C.ii) (Termination of Force Placed Insurance).

 

As part of its effort to restore integrity in the IRG and confidence in its work, Servicer

has undertaken several actions. First, Servicer has adopted corporate governing principles for the

IRG that mandate processes and procedures within the IRG and between the IRG and Servicer’s

mortgage servicing business units that, if properly implemented and maintained on a continuing

basis, should restore the integrity of the IRG and confidence in its work.

 

Second, Servicer has reorganized the IRG. The reorganization included appointment of a

new, interim IRG Executive, the reassignment of management level personnel who report to the

new, interim IRG Executive and an increase in Metric testing level personnel and heightened

training of those new personnel and existing personnel. In November of this year, I interviewed

the interim IRG Executive and believe that the interim IRG Executive has the qualifications and

knowledge to perform this work going forward.

 

Third, Servicer has agreed to provide the SPF and my other Professionals with enhanced

current and future periodic access to information regarding methodologies, procedures and

protocols used in determining relevant Metric loan testing populations and randomly selecting

the identification of specific sample items used in testing each of the Metrics. This enhanced

access includes providing the foregoing sample items selected at the beginning of the test period

before commencement of any testing, rather than at the end.

 

Finally, Servicer has agreed to work with me to establish a hotline to my office that

employees of the IRG may use to report concerns any such employees may have relative to the

IRG and its operations."

 

Back Dating Letters:

"Following my initial communications to Servicer, I met with representatives from

Servicer on November 11, 2014, to address the letter dating issue at length. Servicer represented

that the letter dating issue arose because of a mapping issue in the templates used to create

correspondence on its REALServicing platform."

 

It seems like programming errors is going to cost them a bundle. IT department is really a black box at every company.

 

[BeerBBQ]

When you look at runoff value being higher than market value, you are taking faith that Erbey's cost advantages are real and can actually realize more value that than assets are worth in the market, which is what I said. Of course if you believe in Erbey's story you should probably be buying this stock aggressively (assuming you like the underlying market risk in the MSRs). But I do think you still need faith in Erbey to be a buyer at these levels.

 

For what is basically a large pool of financial assets, saying runoff value >>> liquidation value is expressing faith in the manager.

 

I would calculate liquidation value by taking net tangible equity of $1.2bn and add the $500m write-up that takes OCN's MSRs from their book value to fair market value (according to OCN's latest presentation); the rest of the assets are probably worth close to book value. So around $1.7bn. You could also perhaps add the $400m in goodwill - after all these were very recent acquisitions.

 

Could Morningstar or anyone else please explain the rationale behind adding back the $400m in Goodwill?  Is the assumption that the Goodwill created in an acquisition of a MSR is really an estimation of the future profit potential that would be created by being able to more profitably service the MSR i.e. lower cost, longer duration, etc?

 

 

[yadayada]

http://www.bloomberg.com/news/2014-12-18/ocwen-said-to-have-stalled-home-sales-by-underwater-borrowers.html

[valueinvestor82]

Thank goodness "Spitzer Jr." Will be gone in January. They are literally drawing issues out of a hat, throwing it to see if it sticks, than moving on to the next one. The shakedown is so ridiculous, it doesn't even matter because the most conservative runoff scenario would get us to $30+. I keep asking myself,

 

Why is this below $30?