Mortgage Servicer’s Buiness is Called into Question

Check out the excerpt below regarding William Erbey, a mortgage servicer who owns OCWEN, among other companies, and why his business is being called into questions. It's rather unsettling that there are minimal, if not incredibly limited, regulations on what is happening here. The full article is available at the bottom of the page.

Mortgage servicers collect money from homeowners and distribute those payments to lenders. It’s a fairly boring business, but not to William C. Erbey.The 64-year-old billionaire has built a servicing empire of mind-aching complexity that plays a huge role in the nation’s housing market. Mr. Erbey’s flagship company, Ocwen Financial, now services about one of every four subprime mortgages in the United States.
Now, Mr. Erbey’s smarts — and his collection of companies are being tested. State and federal regulators are concerned that Ocwen is mishandling some of the mortgages it now services, citing examples of shoddy paperwork and faulty technology.

Regulators and investors, which actually own most of the loans Ocwen services, are also questioning the unusual arrangements between Ocwen — “new co” backward — and four other publicly traded companies where Mr. Erbey is chairman. The companies do things from buying up delinquent loans to renting out foreclosed houses.

In effect, Mr. Erbey’s enterprise has become a complex financial services group, but without the regulatory scrutiny that a bank must face.

But in the view of critics, these businesses are rife with potential conflicts because some aren’t entirely separate from each other.

For example, Ocwen and a spinoff, Altisource Portfolio Solutions, were employing the same chief risk officer, who was reporting directly to Mr. Erbey in both capacities, according to New York’s top banking regulator. Ocwen also contracts with some of Mr. Erbey’s other companies. And some of the other companies hire Ocwen.

In the case of one of Mr. Erbey’s companies, Home Loan Servicing Solutions, it now works only with Ocwen. Home Loan Servicing Solutions was created to purchase mortgage servicing rights from the banks. Ocwen actually services the loans.

By providing financing for Ocwen’s servicing business, Home Loan Servicing helps bolster Ocwen’s returns. And Mr. Erbey owns about 13 percent of Ocwen, but a much smaller stake in Home Loan Servicing, which means that, in theory, he has more of a stake in Ocwen’s success.

Investors have seemed willing to overlook any potential pitfalls in the unusual corporate structure. Helped by a flood of new servicing business, Ocwen’s shares more than tripled in value from the end of 2011 to the end of last year.

But its stock price has recently tumbled in the wake of fresh scrutiny of Ocwen from Benjamin M. Lawsky, New York’s superintendent of financial services, who sent a letter to Ocwen earlier this week demanding more details about the relationships between the companies.

While some state and federal regulators and housing advocates have criticized the servicing companies broadly for frustrating homeowners with sloppy paperwork, erroneous fees and inadequate customer support, others say that Ocwen does a good job in granting mortgage modifications to troubled borrowers.

“We get more principal reductions out of Ocwen than we do out of anyone else,” said Bruce Marks, who heads the Neighborhood Assistance Corporation of America, a nonprofit housing advocacy group.

Still, the question hovering over Mr. Erbey’s empire is whether the increased regulatory scrutiny will slow the growth of Ocwen’s servicing pipeline.

Mortgage Servicer’s Ties Raise Regulatory Concern