Mortgage servicers Ocwen Financial Corp. (NYSE: OCN ) and Nationstar Mortgage Holdings (NYSE: NSM ) have been under fire by New York State's Department of Financial Services for some time now, as the agency probes the high level of consumer complaints concerning their handling of problem mortgages.
Ocwen, in particular, has squirmed under the keen eye of Benjamin Lawsky, the head of the NYSDFS. That's because Ocwen's owner, businessman William Erbey, also owns a dizzying array of related companies: Altisource Residential Corp., which purchases delinquent loans, and Home Loan Servicing Solutions, which purchases mortgage servicing rights from Ocwen, only to hire Ocwen to do the actual servicing.
A family of companies engaged in nepotism?
If you're feeling confused, let me clarify that HLSS was spun off from Ocwen, as was Altisource Portfolio Solutions (NASDAQ: ASPS ) – which, in turn, spun off Altisource Residential and Altisource Asset Management. Now, Lawsky has another concern, regarding Hubzu – an online real estate auction site owned by Altisource Portfolio.
According to the NYSDFS chief, Hubzu charges Ocwen-sourced properties auction fees that are three times higher than those charged on other properties. Those extra fees, of course, are passed on to the hapless borrowers – as well as investors.
All of these interrelated business dealings have Lawsky scrutinizing Ocwen heavily, noting that he has "concerns regarding self-dealing", whereby a company is acting in its own interest, rather than that of its clients'. There's no question that Erby's network of businesses complements each other. In addition to the Ocwen-HLSS relationship, Altisource Residential buys delinquent loans from Ocwen, among other sources, turning the properties into single-family rentals. The rental subsidiary is managed, of course, by Altisource Portfolio Solutions.
Ocwen's skyrocketing fortunes helped hoist Erbey onto the Forbes 400 list of U.S. billionaires last year, where he settled in at spot No. 243. Erbey's business acumen was honed first at GE Capital, then at Ocwen. For Erbey, the mortgage meltdown presented a unique opportunity to get rich from a business that catered to the aftermath of the crisis.
Erbey knows how to save a buck, too: He moved his company headquarters to St. Croix in 2012, taking advantage of the area's designation as an economic development zone – which allows him to pay a minimal corporate income tax. He also outsources everything he can to India, where costs are low.
Meantime, the interconnectedness of Erbey's empire bothers regulators, and Lawsky sent a list of eight questions to Ocwen, asking for details regarding the relationship between Hubzu, Ocwen, and Altisource Portfolio. The hounding by regulators may have influenced Ocwen's stock price, which has fallen more than 30% since the beginning of the year.
Nationstar has also seen its stock price fall in 2014, but only by about 13%. Both Ocwen and Nationstar were lauded recently by Fitch Ratings, which noted that the companies have been much more efficient than banks at resolving troubled loan issues. But complaints continue to trouble regulators, as well as the internal workings of Ocwen's family of businesses. If Erbey can't allay Lawsky's concerns, Ocwen's precipitous rise may turn into an equally abrupt descent.
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