Ocwen Financial to Settle Mortgage Lawsuit for $3.7M

Zacks

One of the biggest non-bank mortgage servicers in the U.S. Ocwen Financial Corp. (OCN) agreed to settle a Massachusetts lawsuit related to mortgage handling by paying $3.7 million. Of the total settlement, homeowners will receive $3.0 million while the rest of the amount will pertain to the state.

The lawsuit alleged that Ocwen unlawfully foreclosed on properties and did not provide the required notices to homeowners who were at default. Further, an acquired company of  Ocwen – Litton Home Servicing LP – breached state laws as it initiated foreclosure process on homes wherein actually the company did not hold the particular mortgages.

The latest settlement follows the $2.1 billion settlement announced in Dec 2013 with the Consumer Financial Protection Bureau (:CFPB) and other regulators, along with 49 states and the District of Columbia. The settlement pertained to the resolution of the alleged charges of the company’s improper handling of mortgages.

Ocwen in Trouble Tides

Though we are encouraged by Ocwen’s efforts to gradually resolve its legal hassles, the company is still facing challenges in carrying out its operations. Notably, in Feb 2014, Benjamin Lawsky, superintendent of New York's Department of Financial Services (:DFS), restricted the proceedings of the cash-deal worth $2.7 billion entered into by Wells Fargo & Company (WFC) and Ocwen in Jan 2014 as it doubted Ocwen’s capability to service loans.

Further, Mr Lawsky is conducting investigations on Ocwen as he raised concerns regarding conflict of interests between Ocwen and certain publicly listed affiliates including Altisource Residential Corporation (RESI), Altisource Portfolio Solutions S.A. and Home Loan Servicing Solutions, Ltd. (HLSS)

Bottom Line

Given the new capital regulations, in addition to paying penalties for malpractices related to mortgage loans, servicing of loans has become a costly affair for the banks. Hence, U.S. mortgage servicing and origination is rapidly shifting to non-bank financial institutions such as Ocwen.

Notably, of late, Ocwen has been growing inorganically. The company acquired MSRs from several large banks including Morgan Stanley, The Goldman Sachs Group, Inc. and JPMorgan Chase & Co. Upon completion of all the announced deals, the total servicing portfolio will likely be around $500 billion. At present, the company is the fourth largest mortgage servicer in the country.

We believe the company has the potential to combat its inefficiencies and sustain growth in the long run, but nothing can be conclusively said about how its ongoing investigations will impact its financial stability.

Ocwen currently carries a Zacks Rank #5 (Strong Sell).

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