Mortgage servicer Ocwen Financial revealed in a securities filing this week that it had received a subpoena from the Securities and Exchange Commission (SEC) in June for documents related to Ocwen's business dealings with several affiliates, to determine if those relationships adhere to state and federal regulations.
More specifically, Ocwen said it had received a subpoena from the SEC requesting files related to its dealings with Altisource Portfolio Solutions, Altisource Residential, Altisource Asset Management Corp. and Home Loan Servicing Solutions, Reuters reports.
William C. Erbey, executive chairman of Ocwen, is also chairman of Home Loan Servicing Solutions, Altisource Asset Management Corp. and Altisource Residential, according to the filing. The SEC is reportedly looking to determine whether his multiple overlapping roles are a potential conflict of interest.
In April, Benjamin Lawsky, superintendent of the New York State Department of Financial Services, said he was concerned that Ocwen and Altisource Portfolio Solutions were employing the same chief risk officer, who was reporting directly to Erbey in both jobs.
In a separate action in February, Lawsky halted the transfer of $39 billion of mortgage servicing rights to Ocwen from Wells Fargo, saying he was concerned that Ocwen didn't have the resources in place to service the loans in a compliant manner.
Apparently, investors are also worried that Erbey's multiple roles represent a potential conflict of interest. Earlier this week, law firm Robbins Arroyo filed a federal securities fraud class action suit against Ocwen on behalf of shareholders. The suit, filed in the U.S. District Court for the Southern District of Florida, alleges that the company and some of its officers and directors violated the Securities Exchange Act of 1934 between May 2, 2013 and August 11, 2014.
Specifically, the lawsuit alleges that Altisource, as a third party contractor to Ocwen, overcharged distressed homeowners for force-placed insurance to the tune of about $65 million. What's more, the suit alleges that Erbey was involved in approving the transactions, which may have been a conflict of interest since he is chairman of both firms.
The complaint also accuses Ocwen of failing to comply with laws and regulations designed to protect homeowners, and further alleges that Ocwen's financial statements were artificially inflated and did not present a fair representation of its finances or operations.
Last week, Ocwen announced that it would be restating its results for full year 2013 and the first quarter, citing non-GAAP compliance. The adjustment is expected to reduce its pretax income in the first quarter by about $17 million, according to the Reuters report.
The SEC is reportedly planning to issue an additional subpoena related to Ocwen's announcement that it was amending some of its financial statements, the New York Times reports.
Following his move to halt the MSR transfer, Lawsky installed an independent monitor at Ocwen to address the problems with the firm's record keeping.
In April, Lawsky launched an investigation into why an auction services company that Ocwen works with was charging Ocwen customers nearly three times as much as it does non-Ocwen customers.
In a letter to company officials, Lawsky asked why auction services firm Hubzu, a subsidiary of Altisource Portfolio Solutions, was charging Ocwen customers what appeared to be three times as much as it did others.
‘The relationship between Ocwen, Altisource Portfolio and Hubzu raises significant concerns regarding self-dealing,’ Lawsky said in the letter. ‘In particular, it creates questions about whether those companies are charging inflated fees through conflicted business relationships, and thereby negatively impacting homeowners and mortgage investors.’
Lawsky said that when ‘Ocwen selects its affiliate Hubzu to host foreclosure or short sale auctions on behalf of mortgage investors and borrowers, the Hubzu auction fee is 4.5 percent.’ However, ‘when Hubzu is competing for auction business on the open market, its fee is as low as 1.5 percent.’
Part of the problem is that these fees get passed onto consumers, as well as investors – yet they have no choice as to which auction services company is used by Ocwen, Lawsky said.
Lawsky said that if Hubzu was charging others lower fees to attract new business, that that raised ‘concerns about whether Ocwen-serviced properties are being funneled into an uncompetitive platform at inflated costs.’