Benjamin Lawsky, superintendent of New York's Department of Financial Services, who in February put a hold on Ocwen Financial's bid to acquire mortgage-servicing rights (MSRs) to $39 billion in home loans from Wells Fargo, is reportedly investigating why an auction services company that Ocwen works with is charging Ocwen customers nearly three times as much as it does non-Ocwen customers.
In a letter to company officials, Lawsky asks why auction services firm Hubzu, a subsidiary of Altisource Portfolio Solutions S.A., is charging Ocwen customers what appears to be three times as much as it does others.
‘The relationship between Ocwen, Altisource Portfolio and Hubzu raises significant concerns regarding self-dealing,’ Lawsky says in the letter. ‘In particular, it creates questions about whether those companies are charging inflated fees through conflicted business relationships, and thereby negatively impacting homeowners and mortgage investors.’
Lawsky goes on to write that when ‘Ocwen selects its affiliate Hubzu to host foreclosure or short sale auctions on behalf of mortgage investors and borrowers, the Hubzu auction fee is 4.5 percent.’ However, ‘when Hubzu is competing for auction business on the open market, its fee is as low as 1.5 percent.’
Part of the problem is that these fees get passed onto consumers, as well as investors – yet they have no choice as to which auction services company is used by Ocwen, Lawsky says.
Lawsky writes that if Hubzu is charging others lower fees to attract new business, that that ‘raises concerns about whether Ocwen-serviced properties are being funneled into an uncompetitive platform at inflated costs.’
Lawsky's letter, dated April 21, includes eight probing questions regarding Ocwen's business relationship with Hubzu that he wants answered by April 28. For example, he wants to know how many of Ocwen's REO and short sale properties are marketed on Hubzu – and further, whether investors and homeowners are required by Ocwen to use Hubzu to market short sale and REO properties.
When Lawsky halted Wells Fargo's planned sale of MSRs on $39 billion in debt to Ocwen in February, he cited concerns that the company might not have the capacity to handle the deal.
‘I think it is appropriate for regulators – where warranted – to halt the explosive growth in the non-bank mortgage servicing industry before more homeowners get hurt,’ Lawsky said in prepared remarks for the New York Bankers Association Meeting and Economic Forum, just days after effectively blocking the proposed sale.
‘We – both state regulators and the regulated servicers – need to make sure that these MSR transfers do not put homeowners at undue risk,’ Lawsky said. ‘We have a vital responsibility to protect consumers. There are real people at the other ends of these loans, and the ability to work with those homeowners is not something that these non-bank firms can build up overnight.’
Later that same month, Lawsky sent a letter to Ocwen officials outlining specific concerns regarding the non-bank's servicing operations.
Meanwhile, Bill Erbey, CEO of Ocwen, said during a recent conference call for Home Loan Servicing Solutions' first-quarter earnings that Lawsky's hold on the Wells Fargo MSR deal has, in effect, put a freeze on all MSR deals in the market.