Wednesday, December 31, 2014

Shanghai Stampede Leaves 35 Deaths, Local Government Says

from bloomberg

December 31, 2014

A stampede during New Year’s eve celebrations in Shanghai has left 35 people dead, the city government said in a posting on the microblogging site Weibo.
The incident, which happened at about 11:35 p.m. local time at Chen Yi Square on the city’s Bund riverside pedestrian area when people gathered to celebrate the New Year, also caused 43 injuries, according to a post on Weibo. The Shanghai government has established a work group to address the situation.
Shanghai officials had canceled a large-scale public event in the Bund area this year, according to a Dec. 31 Shanghai Morning Post report posted on the city’s website. Subway stations remained open during New Year’s eve and the city had also extended public transportation hours to meet passenger demand.
Injured people were sent to No. 1 People’s Hospital of Shanghai, Changzheng hospital, Ruijin Hospital and Huangpu Central Hospital. Shanghai Communist Party Secretary Han Zheng and Mayor Yang Xiong went to hospitals to visit injured people, the city said on its Weibo account.
To contact the reporters on this story: Belinda Cao in New York at; Huang Zhe in San Francisco at

To contact the editors responsible for this story: Nikolaj Gammeltoft at Gregory Turk

Monday, December 29, 2014

Ocwen Would Do Well to Follow the Lessons of Berkshire’s Clayton Homes

from nytimes 

James L. Clayton, right, the founder of Clayton Homes, with his son Kevin, in 2003. CreditWade Payne/Associated Press
Another View
Lawrence A. Cunningham, a professor at George Washington University and former corporate lawyer at Cravath, Swaine & Moore, has written numerous books including, most recently, “Berkshire Beyond Buffett: The Enduring Value of Values.” This post is adapted from that book.
The cultural detritus of the financial crisis still plagues some corporations, as the abrupt resignation of the chairman of the mortgage servicing firm Ocwen Financial Corporation shows. But New York State’s sharp rebuke of the company indicates that today’s overseers are committed to purging the flotsam.
Ocwen grew rapidly since 2009 by acquiring mortgage servicing rights from large banks and rivals exiting that business. Today, it services $430 billion in loans, making it one of the largest servicers in the United States and the largest servicer of subprime mortgages.
Yet it lacked the leadership and culture necessary to absorb such rapid growth through amalgamations with disparate firms. According to Benjamin M. Lawsky, the New York State superintendent of financial services, Ocwen’s personnel failed to maintain proper records and wrongfully foreclosed on the homes of many customers. Its board condoned deals between the company and affiliates of its chairman, William C. Erbey, despite conflicts of interest.
Mr. Lawsky and Ocwen settled the case in exchange for Mr. Erbey’s resignation and the appointment of two new outside directors to Ocwen’s board. Mr. Lawsky thus correctly perceives defects in the tone at the top at Ocwen and resulting culture, one skewed to favor top executives, not customers or shareholders.
A manufactured home from Clayton Homes, a home builder and housing lender that was acquired by Berkshire Hathaway in 2003. CreditNancy Pierce for The New York Times
Imposing such a change at the top is bold, but may succeed as long as the successors and continuing executives focus on the importance of leadership and culture. In doing so, they would do well to heed lessons from the business case of Clayton Homes, another servicer of mortgages and a large housing lender.
Though Clayton also concentrates in subprime loans, it has had an entirely different track record, prospering throughout the financial crisis. It had no increase in customer foreclosure rates. It met all its obligations as a lender, borrower and servicer. And it even acquired several failed competitors to move to No. 1 in its segment from No. 4.
Clayton’s exceptional experience is a result of the corporate culture instilled by its eponymous founder, James L. Clayton. Born in 1934 on a Tennessee sharecropper’s farm in a log cabin with no electricity or plumbing, he won the Horatio Alger Award in 1991.
As a child laborer, Mr. Clayton earned 25 cents a day driving farm mules that pulled logs to make rows in the cotton fields. After working his way through college and law school at the University of Tennessee, Mr. Clayton went into business with his brother, first selling cars and later mobile homes. The success in selling mobile homes motivated Mr. Clayton to begin manufacturing homes and eventually financing them.
Never forgetting his roots and deeply believing in the Golden Rule, Mr. Clayton concentrated on his customers’ circumstances. He figured that his typical customer — blue-collar workers and retirees — could afford to pay at most $200 a month. Mr. Clayton worked backward to build and finance homes priced for that budget.
In every year from 1989 through 1992, Forbes named Clayton Homes one of the best small companies in America. It had 10 manufacturing plants and 550 dealerships operating in half the states. Prosperity continued through the 1990s as the company grew in all ways, including by adding manufacturing plants and dealerships and increasing sales and financing revenue.
In the early 2000s, as the economy sagged, the manufactured housing industry went into a tailspin, which worsened as the decade progressed. While peers downsized aggressively and closed plants extensively, Clayton minimized both. Thanks to the vertical integration of the business that generated multiple revenue streams, the company even managed to maintain profitability throughout the decade.
The company has always been scrupulous in dealing with home buyers and financiers who invested in the pools of mortgages it underwrote. Mr. Clayton criticized unsavory industry practices that make it too easy for customers to borrow, such as manipulating the terms of down payments or allowances, contrasting the culture at Clayton Homes:
At Clayton Homes, we can’t ever compromise our credibility by participating in such schemes. Unethical behavior is not and will not be tolerated. We now sell over a billion dollars of mortgages every year, and investors who buy those mortgages never meet the customers, or see the collateral. The trust and faith enjoyed by our company from so many shareholders, investors and suppliers, and our 8,000 team members is so very important. We must always take our credibility and integrity seriously.
By the mid-2000s, promoters of manufactured homes spurred business by siphoning money to buyers who should not have purchased homes with loans that lenders should never have made.
What distinguished Clayton Homes was that its financing division, unlike that of competitors, did not engage in predatory lending or exploit its customers’ naiveté. Mr. Clayton attributed the difference to his company’s maintenance of a “sacred wall” between sales and credit that competitors failed to maintain.
In ensuing years, the industry’s problems crystallized and, during the 2008 financial crisis, Clayton Homes was in a position to benefit. Before 2008, it increased business by applying prudent lending criteria that resulted in a well-performing portfolio of loans. It adopted the same customer-centric focus in servicing loans as it did underwriting them.
After 2008, as Clayton continued its sensible business practices, the company prospered while its chief rivals faltered. Amid the crisis, Clayton was an exception: No purchaser of the loans it originated or had repackaged for sale ever lost a dime of principal or interest.
The results were astounding for the industry. In 1999, the three largest manufacturers were Champion, Fleetwood and Oakwood,
which together commanded nearly half the output. Clayton was fourth. By 2009, those three had all disintegrated and Clayton Homes, which had acquired many of its rivals, was on top.
Clayton’s creed and corporate culture were key reasons it attracted the interest of Warren E. Buffett’s Berkshire Hathaway, which acquired Clayton in 2003. Clayton Homes, an industry leader now run by Mr. Clayton’s son Kevin, shows that integrity is not only a moral virtue but a business value.
Mr. Lawsky should encourage those assuming the leadership at Ocwen to take a page from Clayton’s book. They should set a tone at the top to foster a corporate culture based on the Golden Rule: Do unto others as you would have them do unto you.

Sunday, December 28, 2014

Finally, a Financial Executive Is Sacked for His Company's Misdeeds

Dec 22, 2014 

By Photo: Getty Images

LLet’s say you run a company whose misdeeds are splashed across the front pages of the business section on an almost weekly basis. You might reasonably expect to be fired without delay. But then let’s also stipulate that you’re in the financial services industry. Recent history suggests you’ll be able to keep your job and your handsome bonus, and that even if law enforcement officials penalize the company for improprieties, somebody elselike your shareholders will pay those fines, leaving you to continue your charmed life unscathed.
William Erbey, the billionaire chairman of the mortgage servicing giant Ocwen, probably thought that would be his fate as well, but he didn’t anticipate the determination of New York Superintendent of Financial Services Benjamin Lawsky. On Monday, Lawsky announced Erbey would step down chairman of Ocwen and four related businesses, as part of the settlement of an investigation into the company’s sad enduring legacy of ripping off homeowners.
It isn’t a prison sentence. But on the spectrum of accountability for financial industry executives, “forced to resign” beats “suffered no consequences while staying in power.”
Lawsky has been chasing Ocwen for several years. A mortgage servicer handles day-to-day operations on loans, from collecting monthly payments to making decisions after a default. Ocwen has grown almost ten-fold since 2009 by purchasing the rights to service distressed loans from the likes of JPMorgan Chase, Bank of America, and Ally Bank. Big banks have engaged in a fire sale of their mortgage servicing rights, because of increased compliance standards for servicing, and because of new bank capital rules that make servicing loans costly. As a non-bank, Ocwen has more wherewithal to handle mortgage servicing, and this has made it the 4th-largest servicer in America. 
Almost immediately, Ocwen showed itself incapable of properly servicing mortgages. In 2011, Lawsky found a litany of problems with Ocwen processes, including incomplete documentation and record-keeping, falsification of evidence through “robo-signing” and pursuit of foreclosures without legal standing. An initial Agreement on Mortgage Servicing Practices, laying out specific reforms and upgrades Ocwen needed to satisfy legal obligations, led to a subsequent consent order in 2012, after an impromptu investigation found numerous violations. 
Ocwen engaged in “dual-tracking,” negotiating loan modifications while also advancing homeowners through the foreclosure process. It improperly charged homeowners unauthorized fees. It failed to honor agreed-upon loan modifications when they bought mortgage servicing rights from other servicers. 
The federal Consumer Financial Protection Bureau found similar problems with Ocwen and reached an agreement on a $2.1 billion settlement. But most of the money went toward modifying loans that Ocwen serviced but didn’t own, allowing it to pay the fine with other people’s money.
More recently, Lawsky uncovered more Ocwen secrets. He discovered that four other public companies chaired by Ocwen chairman William Erbey have close business relationships with the mortgage servicer (Erbey is also the largest individual shareholder for all the companies). One subsidiary hosts nearly all of Ocwen’s online auctions; another handles all Ocwen post-foreclosure real estate transactions. So Ocwen profits by funneling default-related business to closely associated companies, providing an incentive to push borrowers into default.
Lawsky also found that Ocwen backdated letters to borrowers, making it impossible for them to challenge denials of their mortgage modifications within a specific time frame. He also investigated whether Ocwen stalled short sales, where homes get sold for less than the balance on the mortgage, in order to collect additional fees. 
It was never clear whether Ocwen deliberately heaped this abuse on homeowners purely for profit, or because its outdated servicing systems were overwhelmed by the spectacular growth. Either way, Ocwen simply cannot do its job within the bounds of the law. According to Monday’s consent order, a review of 478 loans by Lawsky’s compliance monitor revealed “1,358 violations of Ocwen’s legal obligations,” roughly three violations per loan.
This time, Lawsky did not spare top executives. Erbey will resign both Ocwen and the four related companies by January 16, and subsequently hold “no directorial, management, oversight, consulting, or any other role at Ocwen or any related party.” Any other Ocwen employees also working for one of the other four companies will have to drop those responsibilities.
Under the agreement, Ocwen will add two new independent board positions, and an Operations Monitor will work directly with the board on oversight functions, and determine whether other senior management will have to be fired. Ocwen cannot acquire other mortgage servicing rights without the consent of the Operations Monitor.
Ocwen will also pay $150 million to New York homeowners harmed by the company. Instead of a “soft-dollar” promise of mortgage modifications that Ocwen can pass on to the owners of the loans they service, these are cash penalties$100 million to the Department of Financial Services for housing counseling and community redevelopment programs, and $50 million to be split by Ocwen foreclosure victims, with $10,000 for each borrower on whom Ocwen completed foreclosure, and the rest handed out to those with active foreclosures in process. Ocwen will also have to re-evaluate borrowers in foreclosure after paying the penalty, “in light of their improved financial condition resulting from such payment.” 
Ocwen cannot take a tax deduction on any of these payments, per the agreement. The company also agreed to provide all of its New York borrowers with their complete loan files upon request, along with assurances to detail reasons for any denials of mortgage relief. As the loan files represent evidence in private borrower misconduct litigation, it could expose Ocwen to further legal headaches.
This ramps up the pressure on other law enforcement agencies to deliver legitimate justice in financial services settlements. Lawsky’s agency used its leverage to effectively take operational control of Ocwen, forcing out its chairman, adding new leadership and installing multiple compliance standards. This sends a rare message to executives across the industry that crime doesn’t pay. Moreover, the cash penalties are real, and the company cannot dodge them. Blocking the purchase of mortgage servicing rights attacks the lifeblood of a company that does not generate its own loans. And the associated publicity around the misconduct has sent Ocwen stock down by two-thirds from its October 2013 peak.
Federal regulators have been sniffing around Ocwen too. Last week, the monitor of the National Mortgage Settlement announced that he could not trust information coming from Ocwen about its compliance. But federal settlements have a new precedent to live up topersonal accountability on executives, and no free passes for companies that repeatedly violate past agreements.
Lawsky will reportedly leave the Department of Financial Services for the private sector within the next couple months. Monday’s action shows why that will be such an enormous loss. He has not only used his relatively obscure regulation agency to fulfill the goal of individual accountability for financial crimes. He also put pressure on the entire regulatory apparatus to live up to his actions, and take a stronger line against Wall Street misconduct. And he targeted the servicing industry, the most broken part of the mortgage market, with actions that may actually put it on an improved path.
In an interview with The New Republic in April, Lawsky said “When a corporation does wrong, it has to be that individuals who work at the corporation have done wrong.” It’s incredible that, years after the financial crisis, someone not only made that self-evident claim, but followed through on it.
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Saturday, December 27, 2014

AirAsia 8501 Goes Missing Over Pacific After Pilots Request Course Change

from abc

Dec 28, 2014, 1:19 AM ET

Bill Erbey Of Embattled Mortgage Giant Ocwen Loses Over $300M In Hours, No Longer Billionaire


Antoine Gara Forbes Staff
I cover the good, the bad and the ugly of finance.

Mortgage firm Ocwen Financial has found itself in hot water over conflicts of interest in its foreclosure policies.

William Erbey of Ocwen Financial Corporation is no longer a billionaire after shares in the mortgage servicing giant he founded tumbled as much as 30% on a $150 million settlement the company reached with the New York Department of Financial Services. The civil regulatory pact, which alleges serious conflicts of interest between Ocwen’s various affiliates and widespread misconduct when foreclosing on homes, will also end Erbey’s direct involvement with the company he built over a span of thirty years.
Erbey, according to Forbes’s Real Time Wealth Rankings for billionaires, lost over $300 million on Monday causing his net worth to fall to around $800 million and knocking him out of the billionaire ranks. He was worth as much as $2.5 billion in March when we published our annual listing of theworld’s wealthiest.
Ocwen tumbled nearly 30% to three-year lows just over $15 a share, while Altisource Portfolio Solutions and Altisource Asset Management fell over 30% in late trading. Erbey is the largest shareholder in those three companies and a shareholder in Altisource Residential RESI +1.5% and Home Loan Servicing Solutions Limited, two other Ocwen-related companies that fell over 6% and 5%, respectively. Forbes now calculates Erbey’s net worth at $802 million, as of late afternoon trading.
Margaret Popper, a spokeswoman for Ocwen at Sard Verbinnen & Co., declined to comment beyond the company’s public statements.
On Monday, Ben Lawsky superintendent of the New York Department of Financial Services said Erbey will step down as executive chairman of Ocwen and its four publicly traded affiliates to address serious conflicts of interest the regulator found during a multi-year investigation. For Erbey, known as a penny-pincher and a tireless worker, Monday’s pact is a dramatic reversal in fortune after he built a mortgage empire from the shell of a Delaware-based savings bank beginning in the mid-1980s.
While Erbey initially bought non-performing loans stemming from the savings and loan bust, as TheStreet's TST 0% Dan Freed reported, Forbes calculated his net worth surged into the billions as the company pushed headlong into the prime and subprime mortgage servicing business, especially in the years after the financial crisis as large banks exited the market. 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, amid Ocwen’s fantastic post-crisis growth, Lawsky alleges that the company routinely incorrectly foreclosed on homes, sometimes even as homeowners were in the midst of mortgage modification applications.
A monitor commissioned by the DFS found that within a sample of about 500 foreclosures in 2011, Ocwen had about three legal violations for every home it foreclosed upon, often including a failure to confirm its right to foreclose in the first place. The monitor blamed much of Ocwen’s troubles on a patchwork IT system and a practice of robo-signing mortgage documents. As a result, Ocwen regularly gave borrowers incorrect or outdated information, had inaccurate records and even backdated letters to homeowners seeking a modification or refinancing.
While some of Ocwen’s woes appear to be the result of its rapid expansion, other allegations from the DFS settlement indicate they also came about because of “widespread conflicts of interest” between Ocwen and its four publicly traded related party affiliates.
“The Department’s review of Ocwen’s mortgage servicing practices also uncovered a number of conflicts of interest between Ocwen and four other public companies (the aforementioned “related companies”), all of which are chaired by Mr. Erbey, who is also the largest individual shareholder of each and the Executive Chairman of Ocwen,” Lawsky said on Monday.
As part of Monday’s settlement, Ocwen will 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.
The settlement also stipulates that the DFS-appointed monitor will approve the appointment of two independent directors to Ocwen’s board and continue to watch over the company’s operations. Over the next two years, the monitor will now have power to approve related party transactions between Ocwen and is affiliates, in addition to any additional mortgage servicing rights that the company will seek to acquire in the future.
“We are pleased to have reached a comprehensive settlement with the DFS and will act promptly to comply with the terms,” Ocwen CEO Ronald Faris said on Monday. ”We believe this agreement is in the best interests of our shareholders, employees, borrowers and mortgage investors,” he added.
Ocwen reserved $100 million against its third quarter earnings in anticipation of a settlement and the company said it will record a $50 million fourth quarter charge to reflect the final settlement amount.
“I am grateful to the many associates who have worked alongside me and proud of what we have accomplished,” Mr. Erbey said in a statement. “I am confident about Ocwen’s future under the experienced leadership of the executive team. I have worked with Ron for more than 20 years, and he is uniquely qualified to lead Ocwen going forward,” he added.
Barry Wish, a current Ocwen director, will become executive chairman of Ocwen, replacing Erbey, who will become non-executive chairman on Jan. 16.