Home Loan Servicing Solutions will pay $1.5 million to settle allegations brought by the Securities and Exchange Commission that the mortgage servicer made material misstatements about its relationship with former Ocwen Financial Chairman William Erbey and its valuation of billions of dollars in mortgage servicing rights (MSRs) it acquired from Ocwen.
Erbey, who stepped down from his position as chairman of Ocwen as part of an earlier $150 million settlement with the New York Department of Financial Services, also served as chairman of HLSS.
The SEC alleges that from 2012 to 2014, HLSS told investors that the company had a policy in place that required Erbey to recuse himself from transactions with Ocwen and other related parties, thus resolving the conflict of his dual role. However, HLSS had no written policies or procedures on recusals for related-party transactions – and Erbey approved many transactions between HLSS and Ocwen, the SEC says in a release.
SEC officials also allege that HLSS misstated its net income in 2012, 2013 and the first quarter of 2014 because the methodology it used to value its primary asset – billions of dollars of rights to MSRs that it purchased from Ocwen – did not conform to generally accepted accounting principles (GAAP).
‘As a result of its lax internal controls environment, HLSS failed to properly value its primary asset and to make accurate and complete disclosures in its public filings,’ says Michael J. Osnato, chief of the SEC enforcement division's complex financial instruments unit, in the release. ‘It failed to meet requirements that are fundamental to ensuring that investors receive reliable information, including in matters involving complex assets.’