SEC Turns Up the Heat on Ocwen
The regulatory scrutiny of Ocwen Financial Corp. (OCN) continues to mount, as the Securities and Exchange Commission prepares to serve its second subpoena in as many months to the nonbank mortgage servicer.
The SEC served the Atlanta-based firm with a subpoena on June 12, seeking documents related to its business dealings with Ocwen spinoffs Home Loan Servicing Solutions and Altisource Portfolio Solutions, as well as a pair of Alitsource's own spinoffs.
And the SEC notified the Atlanta-based firm that it intends to file a second subpoena following Ocwen's restated full-year 2013 and first quarter 2014 earnings, according to Ocwen's second quarter 2014 earnings disclosure.
Ocwen is "cooperating" with staff from the SEC's New York Regional Office on the matters, the company said in Monday's regulatory filing. Ocwen general counsel Paul Koches declined to comment further when reached by phone Wednesday.
The June subpoena requests documents related to Ocwen's business dealings with the spinoff companies, "and the interests of our directors and executive officers in these companies," Ocwen said.
Ocwen spun off Altisource Portfolio Solutions (ASPS), a provider of technology, outsourcing and fulfillment services, in August 2009. Altisource Portfolio Solutions later spun off Altisource Residential Corp. (RESI), and Altisource Asset Management Corp. (AAMC) as two separate public companies in December 2012. Altisource Residential is a real estate investment trust that acquires single-family rental properties by purchasing distressed mortgages and real estate owned properties. Altisource Asset Management provides portfolio management and corporate governance services to real estate investment firms.
Home Loan Servicing Solutions (HLSS) was spun off from Ocwen Financial in 2010 to acquire mortgage servicing assets including servicing rights, rights to fees and other income from servicing loans.
Together, these businesses manage the distressed mortgages and REO properties in Ocwen's $435 billion servicing portfolio. William Erbey serves as executive chairman of Ocwen, as well as board chairman of Altisource, Altisource Residential, Altisource Asset Management and HLSS. He owns or controls 26% of Altisource Portfolio Solutions stock and 13% of Ocwen's.
Benjamin Lawsky, New York State’s superintendent of the Department of Financial Services, is reviewing Ocwen's arrangement with affiliated businesses in which critics say try to capture real estate commissions and charge additional fees to homebuyers. More recently, Lawsky has requested information about the sale of Ocwen's force-placed insurance affiliate to Altisource.
The second SEC subpoena is being prompted by Ocwen's August 12 disclosure that a "material weakness existed in the relevant time periods in the adequacy of our controls," when it published financial statements for full-year 2013 and the first quarter of 2014. Ocwen reviewed and restated how it valued the rights to servicing fees that it sold to HLSS. These rights to fees are tied to MSRs owned by Ocwen. The revised 2013 10-K and 1Q14 10-Q, along with Ocwen's 2Q14 10-Q were all submitted to the SEC on Monday.
The SEC subpoena actions follow an April 28 letter notifying Ocwen that the commission is also conducting an investigation into William Erbey's April 2014 surrender of stock options that were included in the executive chairman's equity incentive plan. In the letter, the SEC requests Ocwen's voluntary production of documents and information relating to the option grant and surrender documents from the 2007 plan, Ocwen said in the regulatory filing.