VA Restarts REO Loans

The Department of Veterans Affairs is starting up its vendee program again so it can finance buyers of its foreclosed properties.

VA abandoned its financing program for REO (real estate-owned) under pressure from the Bush administration in January 2003.

However, Congress re-authorized the vendee program and it will enable the agency's REO contractor, Ocwen Federal Savings Bank, West Palm Beach, Fla., to provide seller financing.

"The vendee program is up again," VA director Keith Pedigo said. Ocwen is currently listing about 12,000 VA properties and those properties will be offered for sale with vendee financing, the director of VA's loan guarantee services said.

Ocwen will process the loan applications and approve the vendee loans under VA oversight.

Separately, Ocwen announced it has started a pilot program to offer its servicing rights customers the opportunity to refinance their loans.

"By offering this service, we hope to generate additional income and retain our servicing customer base. Thus, partially hedging our risk to increasing prepayment speeds," Ocwen president Ronald Faris said. The federally chartered thrift will fund the loans and sell them after a period of time. Ocwen has a $37.7 billion subprime servicing portfolio.

Mr. Faris announced the pilot program during a conference call to discuss the company's earnings with Wall Street analysts and shareholders. Ocwen reported a $4.8 million profit for 2003, compared to a $68.8 million loss in 2002.

In November, an equity analyst with Friedman Billings Ramsey estimated the VA REO contract could generate $95 million to $125 million of revenue for Ocwen over five years.

VA had 18,000 foreclosures in fiscal year 2003, which ended Sept. 30. The total would have been higher, except VA provides counseling for veterans and works with servicers to develop repayment plans.

VA is "very pleased" with the way that Ocwen is handling the transfer of the properties," Mr. Pedigo said. "We are very impressed, at this point, with their REO operation."

Ocwen is the target of several class-action lawsuits alleging that its servicing practices are designed to generate fee income by forcing homeowners into default. These allegations include failing to post monthly mortgage payments properly, charging inappropriate late fees and prematurely referring accounts to collections.

Ocwen officials claim these lawsuits have no merit. The VA director said he is aware of the lawsuits.

"It does not appear that any of the allegations go to their operation that handles REO. It goes strictly to their servicing operations. So at this point, I see no reason for concern," Mr. Pedigo said.

One analyst asked about the lawsuits during the conference call. "We are defending them vigorously in court," Mr. Faris said. "Our track record is quite impressive. We have not had a single case that has been certified as a class action. All the cases have been decided in court rulings or by voluntary dismissal by the plaintiffs when confronted with the facts."

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