New York’s top bank regulator asked Ocwen Financial Corp. (OCN) for information about potential conflicts of interest between the firm and its vendors as it seeks to buy $39 billion of home loans from Wells Fargo & Co. (WFC) Ocwen shares tumbled 7 percent.
Ocwen Chairman William Erbey is the largest shareholder in companies that provide mortgage-management services to Ocwen, Benjamin Lawsky, superintendent of New York’s Department of Financial Services, said today in a letter to the Atlanta-based firm.
Erbey’s stakes in Ocwen affiliates “cast serious doubts on recent public statements made by the company that Ocwen has a ‘strictly arms-length business relationship’ with those companies,” Lawsky said in the letter.
Wells Fargo’s planned sale of mortgage-servicing rights to Ocwen was halted by Lawsky, who’s concerned that the company will struggle to properly administer the loans, a person briefed on the matter said earlier this month. Ocwen agreed to “put an indefinite hold” on the deal with San Francisco-based Wells Fargo, the biggest U.S. home lender.
Ocwen dropped to $36.76 in New York, the worst performer in the 228-company Russell 1000 Financial Services Index. The stock is down 34 percent this year.
“Ocwen’s management owns stock or stock options in the affiliated companies,” Lawsky said in the letter. “This raises the possibility that management has the opportunity and incentive to make decisions concerning Ocwen that are intended to benefit the share price of affiliated companies, resulting in harm to borrowers, mortgage investors, or Ocwen shareholders as a result.”
Lawsky’s review of Ocwen’s operations also revealed that the company’s chief risk officer served in the same role for Altisource Portfolio Solutions, one of Ocwen’s vendors, and “reported directly to Mr. Erbey in both capacities,” the regulator wrote. The officer was removed as a result of the review.
Lawsky asked that Ocwen provide detailed information about the financial interests of Ocwen officers, directors and employees in several affiliated companies, and documentation showing the nature and extent of business relationships between Ocwen and those firms.
“These agreements are fully disclosed in our public filings, and we believe them to be on an arms-length basis,” Katarina Wenk-Bodenmiller, a spokeswoman for Ocwen at Sommerfield Communications, said in an e-mailed statement. “We look forward to addressing the matters raised by NY DFS and will fully cooperate.”
Wells Fargo said it hasn’t been a party to discussions with Lawsky’s office regarding Ocwen.
“We plan to continue to gather the facts to have a better understanding of the situation and any potential resolution between Ocwen and the NY Department of Financial Services,” Tom Goyda, a spokesman for the bank, said in an e-mailed statement.
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