Southeastern US financial institution Ocwen Financial Corporation (OCN) rebounded sharply in early Feb 7 market action, correcting a sizable loss incurred by the company the day prior. The Feb 6 drop can be attributed to news the bank would be indefinitely suspending a plan to purchase $39 billion worth of loans from Wells Fargo ($WFC), at the behest of the New York Department of Financial Services.
While the deal is not dead per se, the terse language Ocwen used in the announcement to shareholders strongly indicates that the plan to buy the collection rights to a portfolio containing some 180,000 mortgage loans is not likely to be revived any time soon, if at all.
Ocwen has been under intense scrutiny from federal and state regulators for some time now. The mortgage services provider is the largest subprime mortgage servicer in the US. Ocwen was previously forced to end unscrupulous mortgage signing practices to gain regulatory permission to purchase Goldman Sachs Group’s (GS) mortgage arm in 2011, notably the end of “robo-signing,” or approving substandard applicants for predatory loans they have no chance of being able to pay off.
Since 2011 the Atlanta-based Ocwen has been on an acquisition spree, making several substantial mortgage collection rights portfolios, the largest being the acquisition of $73 billion worth of collection rights from OneWest Bank in June 2013.
Ocwen forgave some $2 billion in mortgage debt in late 2013 as part of a settlement engineered by financial regulators. Ocwen had been found to have charged customers improper fees, failed to accurately credit mortgage payments, and according to a federal spokesperson, “violated federal consumer law at every stage of the mortgage servicing process.”
Concerning the clampdown on the recnet Wells Fargo deal, a person familiar with the matter told Reuters that New York regulators were concerned Ocwen does not have the resources to handle the additional load of mortgage collections in a proper manner.
By midday Ocwen stock rose 3.89 percent on Feb 6, hitting $42.99 a share and correcting the initial poor reaction to the unwanted regulatory intervention.
Since the beginning of the year, Ocwen is down 26.62 percent.
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