Ocwen To Sell $9.8 Billion In MSRs To Nationstar

Posted by Patrick Barnard on February 26, 2015 No Comments
Categories : Mortgage Servicing

Ocwen Financial Corp. has agreed to sell $9.8 billion in mortgage servicing rights (MSRs) to Nationstar Mortgage Holdings Inc. as it reorganizes following a spate of regulatory enforcement actions.

The portfolio includes about 81,000 loans that are owned by Freddie Mac, the company reports.

The deal is expected to close by March 31 and the loans are expected to transfer to Nationstar in April.

Ocwen has faced a spate of regulatory actions during the past two years that have not only shaken up company management but also caused the company's stock to plummet.

In December, William Erbey, the company's executive chairman, resigned as part of a $150 million settlement with the New York Department of Financial Services (NYDFS).

In the wake of that settlement, Ocwen said it would withdraw from the business of servicing mortgages backed by the U.S. government and would instead focus non-agency loans.

One month earlier, in November, Ocwen announced that its planned acquisition of $39 billion of residential mortgage servicing rights from Wells Fargo has been canceled by mutual agreement between the two companies. In February 2014, the NYDFS halted the deal, citing concerns about Ocwen's growth and its capacity to service the high volume of distressed loans.

Later that same month, Benjamin Lawsky, superintendent of the NYDFS, said both state and federal regulators should play a more active role in deciding whether non-bank servicers have the capacity to handle such deals.

‘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.

‘We – both state regulators and the regulated servicers – need to make sure that these MSR transfers do not put homeowners at undue risk,’ he 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.’

In a separate but related action, Lawsky said in April 2014 that he was examining potential conflicts of interest between Ocwen and some of its vendors.

More recently, Joseph Smith, the federal monitor overseeing the 2012 national mortgage settlement, wrote in a report that Ocwen may have improperly influenced which mortgages were picked for a compliance review.

In the report, Smith says that in May 2014, an Ocwen employee ‘contacted a member of the monitoring committee and alleged serious deficiencies in [Ocwen's] internal review group (IRG) process, which called into question the IRG's independence and the integrity of the IRG's operations.’

A subsequent investigation revealed that the internal IRG – which was to select loan files for review independent of management – may have been unduly influenced as to which loan files to submit for review.

‘After my team and I reviewed numerous documents and interviewed several Ocwen personnel, I concluded that I could not rely on the work of Ocwen's IRG for the first half of 2014,’ Smith sais. ‘Therefore, I exercised my authority under the settlement and tasked McGladrey, an independent accounting firm, to retest Ocwen's performance on a number of metrics.’

In December 2013, Ocwen reached a $2.1 billion settlement with the Consumer Financial Protection Bureau and 49 states over alleged homeowner abuses.

As part of that settlement, regulators ordered that a monitor be put in place to oversee the company's mortgage operations.

In a statement, Ronald M. Faris, current CEO of the company, said this most recent sale of MSRs to Nationstar ‘represents the first step in the execution of our previously-announced strategy to transfer certain types of non-strategic servicing.’

Faris added that Ocwen is ‘looking forward to exploring additional MSR transactions with Nationstar.’

‘We are pleased to enter into an agreement to acquire this portfolio from Ocwen,’ added Jay Bray, CEO of Nationstar, in a release. ‘We look forward to expeditiously closing this portfolio and welcome the new customers to Nationstar.’

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