The management team of Altisource Portfolio Solutions said on Friday they believe a suspension of Ocwen Financial’s mortgage license in California is unlikely, causing shares to surge over 50%. Altisource also told investors it expects to earn between $4.40 and $7.95 a share in 2015.
Those comments, made on a conference call with investors, come just days after California regulators said they are seeking to suspend Ocwen’s mortgage license, battering shares in the company and its publicly traded affiliates Altisource Portfolio Solutions, Altisource Asset Management, Home Loan Servicing Solutions and Altisource Residential RESI +3.01%.
The regulator, the California Department of Business Oversight, said earlier this week Ocwen did not adequately respond to repeated information requests into its compliance with the state’s Homeowner Bill of Rights. Tom Dresslar, spokesperson for the California Department of Business Oversight, told Forbesthat the regulator began suspension proceedings against Ocwen in October.
However, on Friday, Altisource CEO William Shepro said the company believes the likelihood of a suspension of Ocwen’s mortgage license is “very low.” Altisource Portfolio Solutions shares surged nearly 60%, while Ocwen shares rose over 15%. Both stocks, nonetheless, are down dramatically over the past 12-months.
Were Ocwen to lose its California license, the sanction would impact 378,132 loans that the company services in the state, according to Bose George, an analyst with Keefe, Bruyette & Woods. Those loans currently carry a unpaid principal balance of $95 billion or roughly 23% of Ocwen’s total UPB due.
That scenario would impact both Ocwen and Altisource, which is a publicly traded affiliate that offers technology and solutions to Ocwen’s servicing portfolio.
California regulators began investigating Ocwen to ensure its compliance with the California Homeowners Bill of Rights, a set of laws to protect against abusive foreclosure practices, after receiving a series of complaints about the company over the past few years. In October, Jan Lynn Owen, Commissioner of Business Oversight, filed a formal complaint against Ocwen seeking a bar.
According to the L.A. Times, an administrative law judge will preside over settlement conferences in February. If a deal can’t be negotiated, a hearing on the suspension of Ocwen’s California licence is scheduled for July.
“We are committed to resolving the DBO’s concerns, and we expect that we will be able to do so,” Marcelo Cruz, Ocwen’s recently hired Chief Risk Officer said in response to the DBO’s complaints, on Tuesday. “In addition to working with leading non-profit organizations to further improve our ability to help homeowners, we continue to build a world class risk and compliance management system at Ocwen,” Cruz added.
Given commentary from Altisource, it appears there is a likelihood Ocwen continues to service mortgages in California, despite complaints from its regulator in the state.
Prominent Wall Street names such as Leon Cooperman of hedge fund Omega Advisors joined the Altisource call to voice frustration with the company’s plunging shares. Cooperman questioned whether the company’s share repurchase activity was well advised given headwinds facing the business
William Erbey-founded Ocwen became a Wall Street darling in the years after the financial crisis as the company gobbled up mortgage servicing rights from banks exiting the business. Over a handful of years, Ocwen grew tenfold to become the largest servicer of subprime mortgages in the U.S. and the nation’s fourth largest mortgage servicer overall, handling an unpaid principal balance of nearly a half trillion dollars by the end of 2013.
However, shares in the company have been battered over the past 12-months as regulators across the country accuse Ocwen of a string of legal violations. In December, New York Department of Financial Services head Benjamin Lawsky alleged that Ocwen routinely incorrectly foreclosed on homes, and had significant conflicts of interest among its related entities.
Ocwen settled those allegations, agreeing to pay $150 million in hard dollar assistance to New York homeowners, $50 million in direct restitution and $100 million for housing, foreclosure relief and redevelopment programs. Ocwen also agreed that founder and former billionaire Erbey would step down as executive chairman of the company and its four publicly traded affiliates.
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