Federal and state regulators have unfairly targeted Ocwen Financial Corp. with the goal of forcing it to sell its mortgage servicing portfolio to investors that would foreclose on troubled borrowers, claims a prominent mortgage finance analyst.

The Consumer Financial Protection Bureau "has been overly harsh in its treatment of Ocwen, both measured by the amount of fines and penalties imposed and also because of the impressive record that the company has amassed in terms of helping consumers via loan modifications and permanent principal forgiveness," Christopher Whalen wrote in a paper published last week. The paper, titled "Abuse of Power: The CFPB and Ocwen Financial Corp.," is posted on the Social Science Research Network website.

Whalen is chairman of Whalen Global Advisors, a firm he started this year. Previously, he served as senior managing director and head of research at Kroll Bond Rating Agency.

Christopher Whalen
Christopher Whalen

Mortgage-backed securities investors are unhappy because Ocwen "has one of the best records in the industry for helping consumers via loan modifications," wrote Whalen. These investors would rather "increase the short-term performance of their investment in private mortgage bonds."

Rather than being recognized for its success in modifying loans, Ocwen is "being held to a far higher standard than any other legacy loan servicer," he said.

For example, among the latest set of accusations against Ocwen, "many of the supposed violations included acts that had been previously settled, were identified by Ocwen itself as part of earlier settlements or that had not occurred at all," Whalen wrote.

Whalen also claims there is evidence of collusion between regulators and investors. On April 20, the CFPB filed a law suit against Ocwen; on the same day a separate suit was filed by 20 states, led by North Carolina. (More than 30 states in total have filed related actions against Ocwen in the past month.)

But in the weeks prior to the filing, the short interest in Ocwen's stock "rose significantly…suggesting that some market participants had advance knowledge of the action by the CFPB and the states," said Whalen.

In late March, Ocwen reached an agreement with New York regulators that could have put it on the path to being allowed to acquire MSRs. In February, it reached an agreement with California regulators.

The CFPB declined a request for comment.

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