For Ocwen Financial Corp. (OCN), the string of regulatory investigations, which began from Dec 2013 in the form of a $2 billion foreclosure settlement deal, continued in 2014 with allegations of backdating foreclosure letters to distressed borrowers in October and the recent questioning of the independence and integrity of the company’s internal review group’s (IRG) operations.
This time, the leading provider of residential and commercial loan servicing, special servicing as well as asset management services has come under the surveillance of the New York Department of Financial Services and the U.S. Consumer Financial Protection Bureau.
Ocwen’s Latest Trouble
The state and the federal government has initiated a probe against Ocwen to investigate if the mortgage servicer deliberately slowed down the short sale process or has an incompetent short sale practice, which causes inconvenience to the borrowers who wish to exit the debt.
When the borrowers are not capable of paying back their debts, they submit an application with their lender company for the short sale of the underlying property. The proceeds from the sale, which is usually lower than the outstanding debt value, goes to the lender and the debt is renounced.
Per the new CFPB rule, the mortgage servicers are required to approve or deny a short sale within 30 days of an application. The regulators will examine if Ocwen intentionally neglected following the new rule and delayed such sales to fish out more fees.
Ocwen has been accused of purposely asking for more paperwork just before the time limit to compel the entire process to lapse and resume again, buying Ocwen additional time. However, the company defended itself by claiming that at times the short sale process is held-up with the aim to maximize proceeds for borrowers and investors and such delays in procedure increase their expenses.
Recently, a federal monitor for the Office of Mortgage Settlement Oversight (“OMSO”) accused the company of providing unreliable information regarding its business practices in the first half of 2014. (Read more: Ocwen in Trouble Again: Faults in Settlement Compliance)
Our Take
Ocwen’s run-in with regulators over the last one year has resulted in more than 60% year-to-date price decline for the company. Moreover, the company reported weak performance in its latest earnings results owing to elevated legal expenses. These persistent brushes with regulatory allegations and inspections will further aggravate pressure on the company’s profitability.
Currently, Ocwen holds a Zacks Rank #5 (Strong Sell). Some better-ranked mortgage investment firms include Essent Group Ltd. (ESNT), Walker & Dunlop, Inc. (WD) and Home Loan Servicing Solutions, Ltd. (HLSS). While Essent Group and Walker & Dunlop hold a Zacks Rank #1 (Strong Buy), Home Loan Servicing carries a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment