Saturday, February 8, 2014

The New Subprime Bet: How Bill Erbey Built A $2.8 Billion Fortune By Getting Inside Homeowners' Heads

webmasters note:

What a bunch of CRAP !

This article is a Forbes article about Bill Erbey founder of Ocwen, New Co, spelled backwards, who has helped more people lose their homes. Forced insurance, when the home is already insured, late posting of payments, are just a few of the tricks Ocwen uses to keep the borrower in perpetual default. Thus collecting more fees.  

There are 141,751 lawsuits in America's court system (according to US PACER , February 8, 2014) that cannot be denied. has beeedocumenting individul cases for over 10 years. 

Like Roland Arnel (founder of Ameriquest) these men have made their fortunes on the backs of American homeowners. Ocwen perfidious negligence led to the loss of my business, Residential Fire Sprinklers, and my home of 26 years. Their illegal and greedy enterprise's. have brought  nothing but misery to the American homeowner who was unfortunate enough (homeowner doesn't choose) to become involved with them.  

Put them in jail is what I say ! 

141,751 American's can't be wrong.  

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Now the Forbes article

from forbes

This story appears in the December 16, 2013 issue of Forbes.
William Erbey of Ocwen Financial built a $2.8 billion fortune by figuring out what makes underwater homeowners tick. (Credit: Jonathan Kozowyk for Forbes)
On a typical sunny and humid Saturday afternoon in St. Croix most people are sunbathing on Buck Island beach or kayaking in Salt River Bay. But William Erbey, the 64-year-old executive chairman of Ocwen Financial, keeps the blinds shut in the second-floor office of his 17th-century Danish stone building. Out of his window is a magnificent view of the Caribbean Sea, but Erbey can’t be distracted. “Sitting in paradise doesn’t mean that we don’t have the same discipline,” he says as he sips from his glass of iced green tea.
Bill Erbey is all about 75-hour workweeks and penny-pinching. It’s the reason in 2012 he moved his principal office from Atlanta to St. Croix, in the U.S. Virgin Islands, which happen to be an economic development zone. As a result Ocwen now saves 90% on its corporate income tax. It’s also the reason Erbey is now worth $2.8 billion and may be the most innovative man in the mortgage business.
Ocwen Financial is the largest nonbank mortgage servicer in the U.S., with a gigantic $435 billion portfolio. Ocwen’s revenue hit $531 million in the third quarter, more than double the same period a year ago, and its stock has zoomed even faster, climbing 275% in the last two years and putting Erbey on The Forbes 400 list for the first time. The bulk of Erbey’s wealth is tied up in Ocwen, but he chairs four other affiliated public entities: Altisource Portfolio Solutions, Altisource Asset ManagementAltisource Residential RESI +5.47% and Home Loan Servicing Solutions.
Mortgage servicers like Ocwen are essentially debt collectors, collecting monthly principal and interest payments from homeowners and delivering them to investors such as Fannie Mae and Freddie Mac and mortgage-backed security trusts. Contrary to their reputation as heartless foreclosure machines, servicers generate revenue by receiving fees on the serviced loans, so their goal is to keep delinquent borrowers paying. It’s especially difficult for Ocwen, which specializes in risky subprime loans. To convince his homeowners to stay on track, Erbey has deployed new models and data-smart practices that combine technology and social psychology.
Imagine an underwater borrower who receives a call from one of Ocwen’s 1,900 call-center operators in India. The operator could start the conversation by telling you that millions of Americans are losing their homes and he understands why you are having difficulty paying your mortgage. Or he could approach you with a more refined message: “Ocwen is able to resolve the mortgage delinquency issue without having to foreclose 80% of the time.” Which prompt is more likely to keep the borrowers current?
To Erbey this simple question demands a not-so-simple answer. He explains that while both approaches sound empathetic, they could have quite different results. The former suggests the possible outcome of failure, while the latter reminds borrowers of Ocwen’s successful track record. “It’s like going to a child and saying, ‘You are very smart,’ and going to another to say, ‘You are very dumb.’ It is very impactful on their performances,” Erbey says.
Over the past two decades Ocwen has poured $150 million into developing its proprietary software, REALServicing, and related products. The system automates the entire process, from loan setup to real-estate-owned asset management, and allows Ocwen’s employees around the world to follow the same meticulous process. It also helps Ocwen monitor the dialogues with borrowers and collect extensive data to conduct behavioral research. The goal is to discover the most effective way to influence borrowers. The software is now owned and developed by Erbey affiliate Altisource Portfolio Solutions, which Ocwen spun off in 2009 and has since climbed in market cap from $100 million or so to $3.5 billion.
“If you think about a person’s monthly budget, you have certain calls on that budget every month,” says Daniel Furtado, an equity analyst at Jefferies who has a buy rating on Ocwen’s stock. “The predominant strategy is to get in touch with the borrower, build the dialogue and help them see that they should pay your bill first.” In a thin-margin business like servicing, these incremental gains or the reduction of losses that Ocwen achieves through research and automation can make a big difference in profits. In fact, Ocwen maintains higher operating margins than its competitors.
Erbey admits that he has been data-focused ever since he was president of GE Capital’s mortgage insurance unit in the early 1980s. He saw that decisions determining the mitigation of loans were often random. “One person would try to foreclose, and another would try to modify. They really couldn’t process it to optimize the outcome,” he says.
When he became chief executive of Ocwen in 1988, Erbey set out to change its approach with data modeling. Initially he met strong resistance from tradition-bound employees, but the data proved his tactics. “People laughed at us for the first 15 or 20 years. Today it’s something that has been adopted by the industry,” Erbey says.
Wilbur Ross, the billionaire investor who sold competitor Homeward Residential to Ocwen last year and subsequently joined the board, never laughed at Erbey’s thriftiness and data obsession. At his first board meeting, Ross recalls, directors discussed a bonus for a senior executive based partly on how many seconds he reduced in service time. “I’ve never seen a company with such precise requirements,” says Ross. “That convinced me how they managed to have such low cost.”
Perhaps the best example of the benefits of Ocwen’s obsession with data mining and behavioral finance is its Shared Appreciation Modification program. Using SAM, underwater homeowners get the chance to stay in their homes and have their principal balance reduced by Ocwen to as low as 95% loan-to-value ratio. But when they sell or refinance the homes, investors in the mortgage-backed securities behind the loans get a 25% share of the upside. Erbey’s genius is that he recognized the option embedded in a typical mortgage and grabbed back a piece of it for himself and investors. “We are always trying to create a win-win situation,” he says.
Since its full launch in early 2011 almost 42,000 families have received loan modifications through SAM. The total modifications amount to $3.7 billion in principal forgiveness, and they reduced mortgage payments by an average of $520 per month. Re-default rates on SAMs have mostly been 10% or less, compared with 33% prior to its adoption, and Ocwen projects that the modified loans are on track to produce a positive return for investors.
Erbey admits he didn’t make SAM up–he borrowed it from his experience during the savings-and-loan crisis of the 1980s. In the years before the financial crisis Ocwen’s solution for delinquent borrowers was generally forbearance. As the recession hit and income levels fell significantly below the line to support the existing mortgages, the company started doing more loan modifications. By examining Ocwen’s proprietary data, Erbey and his team found that default rates spike for borrowers whose mortgages have loan-to-value ratios above 95%. Applying decades-old principles to this issue, Ocwen created SAM in 2010 to take advantage of the downturn.
Like other servicers that survived the financial crisis and are now thriving in the low-rate environment, Ocwen is using its strong cash flow to build its balance sheet and buy mortgage-servicing rights from banks compelled to divest them by Basel III. Besides loan originations, Erbey is also talking about expanding into other areas of consumer finance. His new ventures will likely add some leverage to the balance sheet, but Ocwen’s 1.64 debt-to-equity ratio is still lower than that of its competitors.

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