Funny what a difference a few days makes. Late last week, we discussed how banks were unhappy about the fact that Benjamin Lawsky, New York State’s Department of Financial Services, had the temerity to take his duties as a regulator seriously and launch probes into currency manipulation and evidence of incompetent-to-abusive mortgage servicing at Ocwen. Lawsky is blocking the transfer of mortgage servicing rights to $39 billion from Wells Fargo to Ocwen, questioning Ocwen’s ability to do the job properly. Ocwen is already subject to two orders from Lawsky’s office, one in 2011 and one in 2012. The December 2012 order is based on a limited exam earlier that year that uncovered a number of deficiencies.
Of course, industry incumbents sniffed that Lawsky was overreaching and seeking to garner headlines. But the fact is that the mortgage industry servicing model is broken. Servicing fees don’t compensate them enough to service defaulted mortgages properly, while they do pay them to foreclose. So what do you think they do when a borrower starts to get into arrears? And banks have chosen to ignore, skirt, or claim strained interpretations of requirements in mortgage settlements to end some of the worst practices (the banks are admittedly aided and abetted by weak supervision and provisions in the 49 state/Federal settlement that permit astonishingly large rates of error, as in non-compliance).
Lawsky blocking the Ocwen transfer has bigger implications: the banks were hoping to dump their servicing headache on smaller non-banks who supposedly could do a better job. But as we’ve written repeatedly, mortgage servicing does not scale, and really large servicers tend to be good only at taking and crediting payments and remitting money to investors, and then not even very good at that (previous exams of Ocwen found it often failed to verify the accuracy of information before “boarding” the loans onto its system).
It turns out big investors, including Pimco and Blackrock, also have serious reservations about Ocwen’s performance, to the point of possibly taking the unusual step of suing them. From the Financial Times:
Investors including Pimco and BlackRock are considering legal action against Ocwen Financial, in a sign of unease at the growing clout of non-bank mortgage-servicing companies which are responsible for collecting payments on millions of US mortgages.
The investors’ concerns centre on mortgage servicing practices and loan modifications that they claim may have hurt the performance of securities bought by investors, said people familiar with the discussions…
Ocwen’s servicing portfolio has grown more than 300 per cent since 2012, according to Fitch Ratings, making it the biggest non-bank mortgage servicer in the US managing about $430bn worth of unpaid principal balances on home loans…
Ocwen’s mortgage servicing standards have been under increased scrutiny after it reached a $2.1bn settlement in December with the Consumer Financial Protection Bureau, which had accused the company of a litany of administrative errors and deceptive practices that pushed borrowers into foreclosure…
Non-bank mortgage servicers have expanded rapidly in recent years as banks have sold their rights to service mortgages because of new rules that force them to hold more capital against the assets.
The rapid growth has spurred criticisms that the servicers have been skimping on services as they handle more loans and make aggressive acquisitions of new servicing rights.
So this possible suit reveals a much bigger policy failure: regulators assumed that moving servicing over to hungrier, smaller players would fix the problem. But with no change in the payment structure or the existing agreements, there was no basis for this rosy belief. Indeed, the Ocwen case shows that if anything, this change has made an already bad situation worse. Investors have refused to mobilize to go after rampant servicing abuses (the padded costs, servicer-induced foreclosures and failure to maintain properties ultimately come out of investors’ hides), largely because the investors had incentive problems of their own. They aren’t “investors” in the sense that they are putting their own funds at risk; they are in the other people’s money business. They don’t have incentives to sue and generally can’t be bothered.
The interesting part here is that what appeared to have changed the dynamic is that Ocwen’s performance is apparently notably bad and investors aren’t putting other business at risk (remember, they execute transactions through major banks and think they need their market intelligence and research, so they are loath to sue them). So what was otherwise a misguided regulatory move may have an itty bitty upside in that by locating servicing in non-TBTF, not-otherwise important firms, regulators and investors may, finally, start cracking down on them in a meaningful way. But even if this happens, it’s likely only the worst conduct will be targeted. But even that would be progress.
I would prefer to share the following in several smaller doses, but I live in the Atlanta area, we’re having an “ice event” and it is only a matter of when–not if we will lose power and the internet tubes. So I have to dump the bulk of this on you folks and just hope it’s not too boring to be a thread killer!”
I really want to “hit home” that Ocwen has morphed into many different companies with many different purposes and functions. The main “Ocwiterations” are made up of 5 public companies: (OCN) (HLSS) (ASPS) (AAMC) and (RESI).
The Ocwiterated Ocwen now has a foothold in a cradle-to-grave-to-afterlife spectrum of the residential real estate market. They have a financing division, a rental division, an auction division, and even an off-shored title insurance and re-insurance company called Newsource.
If one is so inclined–please go hang out on Zillow for a while today, filter for houses that are (especially) “preforeclosure.” Many such listings will direct you to companies with names such as Hubzu or auctiondotcom or RealHomeSolutions. Which apparently, are affiliated with Ocwen.
Ocwen has begun to purchase not just MSRs (Mortgage Servicing Rights) but also NPLs (Non Performing Loans.) (Being that distressed homeowners are Ocwen’s captives–why not squeeze every penny out of every possible scenario that could conceivably be triggered in order to generate every conceivable fee or expense that the property could possibly generate for one of the Ocwiterations?)
From the second a call to Ocwen’s call center is answered–I SUSPECT– that an algo has already “gamed out” how that property will best benefit (OCN), (HLSS), (ASPS), (AAMC), or (RESI). And it is my grave concern that the homeowner/consumer who calls in might get funneled into the scenario that generates the most profit for an Ocwen company. What’s to stop them from doing this? Ethics?
Anyway, I like to call this “Ocwenopoly.” (I’m currently working on a prototype for a board game–anyone out there with ties to MiltonBradley/Parker Brothers?) Just kidding. :-)
I will split this into two replies. My next comment will have the SEC links.
They are the devil and pretty soon will “service” every mortgage in the country… (as in bend over and let me service you). They pretty much ruined my life and even AFTER beatign them in court continue to stalk me. No amount of fines, rules and regulations will stop thise beast though I welcome any attempts.
Part II I have tried to tease out the conglomeration and separate it into and under the following five distinct Ocwiterations and its own subsidiaries, acquisitions, spin-offs spin-outs, nanoparticles etc. per and as of November 2013’s SEC filings:
1. Ocwen Financial Corp (OCN)
Subsidiaries of Ocwen Financial Corp. (The “1” after a company means that it is an “Operating Company,” and the “2” means that it is a “Special Purpose Entity.”)
a) Ocwen Loan Servicing, LLC (1)
b) Ocwen Mortgage Servicing, Inc. (1)
c) Homeward Residential Holdings, Inc.
d) Homeward residential, Inc. (1)
e) LittonLoan Servicing, L.P. (1)
f) Real Estate Servicing Solutions, Inc. (1)
g) Ocwen Servicer Advance Receivables Company II, Inc. (2)
h) Ocwen Servicer Advance Receivables Funding Company II Ltd. (2)
i) Ocwen Servicer Advance Receivables Funding Company II Ltd. (2)
j) Prism Advance Receivable Trust (2)
k) AH Mortgage Advance Receivable Trust
l) AH Mortgage Advance Corporation (2)
m) AH Mortgage Advance Corporation III (2)
2. Home Loan Servicing Solutions (HLSS)
(possibly aka Home Loan Servicing Solutions Ltd?)
Subsidiaries of Home Loan Servicing Solutions
a) HLSS Holdings, LLC
b) HLSS Management, LLC
3. Altisource Residential Corp (RESI)
(internally referred to as simply “Residential”)
(considered a “VIE” or “Variable Interest Entity.”)
Subsidiaries of Altisource Residential Corporation (RESI)
a) Altisource Residential, L.P., a Delaware limited partnership (The operating partnership subsidiary of Altisource Residential Corporation)
b) Altisource Residential GP, LLC, a Delaware limited liability company
c) ARNS, Inc., A Delaware Corporation
d) ARLP Trust, a Delaware corporation
e) ARLP Trust 2, a Delaware statutory trust
f) ARLP Trust 3, a Delaware statutory trust
g) ARLP Trust 4, a Delaware statutory trust
Per Altisource Residential Corp’s (RESI) 424B1 on 09/26/2013, page 131:
“Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., J.P. Morgan Securities LLC and Wells Fargo Securities, LLC are acting as joint book-running managers of the offering and as representatives of the underwriters named below. Subject to the terms and conditions stated in the underwriting agreement dated the date of this prospectus, each underwriter named below has severally agreed to purchase, and we have agreed to sell to that underwriter, the number of shares set forth opposite the underwriter’s name. (The underwriting agreement can be found here:”
Underwriters and Number of Shares:
1) Citigroup Global Markets Inc. 2,640,000
2) Credit Suisse Securities (USA) LLC 2,640,000
3) Deutsche Bank Securities Inc. 2,640,000
4) J.P. Morgan Securities LLC 2,640,000
5) Wells Fargo Securities, LLC 2,640,000
6) JMP Securities LLC 600,000
7) Keefe, Bruyette & Woods, Inc. 600,000
8) Piper Jaffray & Co. 600,000
4. Altisource Asset Management Corp (AAMC)
5. Altisource Portfolio Solutions S. A. (ASPS)
(previously known as Altisource Portfolio Solutions S.a.r.l.)
(Altisource, appears to me, seems to be split into three main segments: Mortgage Services, Financial Services and Technology Services. But there is also a segment which is referred to “Corporate and Support Services.”)
Altisource’s principal executive offices are located in leased office space in Luxembourg, Grand Duchy of Luxembourg. (As reported in one of their filings, this is due to more favorable tax treatment.)
The following are Altisource (ASPS) subsidiaries as of their 02/13/2013 filing of their 2012 10K. This is exhibit 21.1:
Altisource Solutions S.à r.l. ; Luxembourg
Altisource Asia Holdings, Ltd. I ; Mauritius
Altisource Business Solutions Private Limited; India
Altisource Portfolio Solutions, Inc.; Delaware
Altisource Fulfillment Operations, Inc.; Delaware
REALHome Services and Solutions, Inc.; Florida
Altisource Solutions, Inc.; Delaware
Altisource US Data, Inc.; Delaware
Springhouse, L.L.C.; Missouri
Western Progressive — Nevada, Inc.; Delaware
Premium Title Services, Inc.; Florida
Premium Title Agency, Inc.; Delaware
Western Progressive — Arizona, Inc.; Delaware
Premium Title of California, Inc.; California
PTS — Texas Title, Inc.; Delaware
Nationwide Credit, Inc.; Georgia
Altisource Online Auction,; Inc. Delaware
Hubzu USA, Inc.; Delaware
Hubzu Notes, L.L.C.; Delaware
Portfolio Management Outsourcing Solutions, L.L.C.; Florida
Western Progressive Trustee, L.L.C.; Delaware
Altisource Outsourcing Solutions S.R.L.(99.99% of outstanding stock); Uruguay
Altisource Holdings, L.L.C.; Delaware
Altisource Outsourcing Solutions S.R.L.(0.01% of outstanding stock); Uruguay
Altisource Single Family, Inc.; Delaware
Altisource Solutions B.V.; Netherlands
Altisource Business Solutions, Inc.; Philippines
The Mortgage Partnership of America, L.L.C.; Missouri
Then, on August 21, 2013, (ASPS) announced the acquisition of Equator, LLC, a national leader in mortgage and real estate business process management solutions.
(control + “f” search for Equator)
(And I think it will be interesting to keep our eyes on this here fledgling Ocwiteration. (They’re so cute right after they hatch!))
NewSource (use control+f) to filter for and find here:
I hope I get to ask some follow up questions to Yves and the rest of you smart folks–but that will depend on how fast our weather situation here deteriorates and if our internet tubes stay connected.
And, of course, you remember that Goldman Sachs sold their mortgage servicing company to Ocwen when they decided to get out of the subprime mortgage business. At that time, I looked up Ocwen’s reputation and it does not have a good reputation. See http://www.goldmansachs666.com/2011/09/goldman-sachs-litton-loan-ocwen-you-are.html
I am offering my small story for what it’s worth. It’s not dramatic, hardly worth mentioning, probably doesn’t contribute much, if anything, to the discussion. We have a mortgage serviced by Ocwen.
We refinanced our old house in 2009 with our bank. The bank used GMAC (Mortgage, I assume) as the servicer. GMAC failed, and the servicing job was handed over to Ocwen. We added a small sum for principal reduction to our first payment with Ocwen. When the transaction history became available online I noticed that they had reduced the regular mortgage payment (P&I plus escrow) by the amount of the principal reduction payment — and then added that amount twice. For example, suppose the standard mortgage payment was $750. Their transaction history showed our payment as $700, plus $50, plus the principal reduction of $50.
Because I have been reading NC as much as possible since early 2010 I became suspicious. I wondered if the odd accounting could be a tactic to make it look like we short-paid our regular payment — not that a rational being could be persuaded by the slightly odd transaction history. To make matters worse, I checked and discovered that with our refinance with a bank with a good reputation (USAA) we had entered the world of MERS. (I checked the handy mers-servicerid.org and found that our investor is Fannie Mae.)
(I called Ocwen and they were very nice, They assured me it was a transcription error on the part of an employee, who had subtracted the amount of the principal reduction instead of adding it, so they added it back and added the principal reduction as well. It has never happened again. My suspicious mind suggests that if I had not called them on it, they would have taken that to indicate I was not paying close attention, and was ripe for exploitation.)
We bought the house in 1995, never missed a payment, and have frequently made principal reduction payments. Between Ocwen and MERS, I want to get the hell out. I feel like this is a disaster waiting to happen. Because I am so risk averse, at age 65 and retired, my retirement funds are parked in a money market account, earning near absolute zero. Would it be worthwhile to sacrifice part of my retirement fund to pay off this stinky mortgage? I want to put as much distance as possible between us and Ocwen and MERS.
I think you are wise to stay on top of them. First let me say that I am a housewife, I can’t do math– and this is not legal advice. That being said, a common modus operandi of some unscrupulous mortgage servicers–as I have come to recognize it–is the following:
Depending upon how their algo has categorized you, you have probably been profiled as not likely to default or become delinquent–and are sophisticated and watchful enough to catch shenanigans early on. So their algo probably knows if they can get your house–and even if they want your house. (Depending on current shadow inventory of homes in your zip code, depending on the price point–i.e. there is a “sweet spot” for bulk-purchase investor homes, a “sweet spot” for one-off “flipper” homes a “sweet spot” for potential rental homes a “sweet spot” for making money off of you via a 40-year adjustable rate, balloon payment, modification, etc.) And when I say “etcetera,”–it’s an algo–it can have a million variables plugged into the equation!
But here is my caution to you about the payment that was initially not accurately credited. Have you heard the term “rolling delinquency?” For those who have not –lemme have a stab at explaining it. There is a status called “rolling delinquency.” There are 2 sub-categories to that–a “rolling 30,” and a “rolling 60.” Let’s say, 5 years ago, you did like Yves did a while back and you inadvertently sent your cat-sitter’s check to your health insurance company. (But in your case you sent the cat-sitter’s check to GMAC.) Let’s say that you never noticed. In some instances, particularly to a sketchy mortgage servicer–that’s a good thing. (Woo-hoo! Fees!) They just might not call your attention to it. But, for the next three years nothing changes to you–but you, to them, are a “rolling 30.” Meaning that you have been 30 days delinquent for some time but only 30 days. You just never made up that one payment. Then, let’s say there is a change in servicing or something and another check does not get credited. But you don’t notice–and you just keep paying. Well–now you are a “rolling 60” and you are suddenly in a fairly precarious position –without knowing it. The next late payment–perhaps the first of which you are even aware–puts you into technical “default” status. Because 90 days is the usual cut-off for “delinquent” versus “default.” (It’s a fuzzy line–but that 90 day is a rule of thumb.) And the term “defaults” in the mortgage servicing industry is spelled “default$.” If you know what I mean. It spells money. And “default” status can be a veritable vortex of death to an unsuspecting and trusting homeowner.
Let me say also–the people in the call centers ARE very nice, generally speaking.They are, also trained to read from a script that is generated by the algo based upon what you say in that conversation. (But make no mistake–you are talking to HAL. The following is an example of one such Ocwen patent.)
Pearl, I appreciate your comments. I admire the breadth of your research – you have added greatly to my knowledge of Ocwen-ness and all the Ocweniterations. And thanks for the reminder about the rolling delinquency. I will up the ante by adding 100% of the P&I to the next payment — I suppose they could still apply it to principal reduction, and leave a rolling delinquency in place — not legally, but how long has it been since legality mattered?
I feel like they have all the power, and I have none, as long as I am engaged with them. If things go right on my side, it’s only because they have not yet decided to pounce on me. The law does not restrain them. They bide their time, looking for a weakness in my ability to resist them. Maybe they think if they are too tacky, too obviously dishonest, things will go badly for them if public opinion is brought to bear on my case. Not that I have a case — from my perspective, I’m all paid up, ahead of schedule, and everybody is happy.
I’m fairly well convinced I won’t be able to rest easy until the note on this mortgage is paid in full.
citizendave – I suggest that as regards the math – your retirement savings is in a money market earning next to nothing or nothing. Pay off that mortgage and be done with it. I have tried (in marriage it was a struggle with the other) to pay no interest. I had only to see the amortization tables of 15 and 30 year mortgage options to debate the side of 15 vs 30. Also retired, I am much happier to only be paying the “second mortgage”/aka taxes.
I am far more comfortable with this advice, for what it’s worth – hold no debt, hold as much cash (federal reserve notes) as you might spend at the winter holiday and invest in hard goods such as items that might come in handy in an energy outage or water shortage dependent on where you live and what’s within your understanding of infrastructure failings. Another friend says stock up on liquor, as that will be in demand should the economy collapse of a moment. She’s buying it by the case and storing it away. She’s also an avid reader of NC. Additionally find your local time bank and get involved. Build that social capital in your neighborhood. And yeah, burn that mortgage and sleep better. I did and do.
If the banks are unwilling to continue servicing mortgages because of those (oh-so-onerous) regulatory capaital requirements and the non-bank servicing model collapses into a swamp of corruption & fraud then it strikes me that the whole Securitisation thing goes down with it. Certainly it would put paid to any possibility of a revival of the *private* Securitisation business and, unless Fannie/Freddie stepped in to take over servicing, the F&F RMBS business would die as well.