No Options With Ocwen

Yesterday I wrote about mortgage loan servicer Ocwen stopping all short sale negotiations.

I proposed that Ocwen might be taking a self centered approach by forcing the homeowner into default in order to maximize the fees it can collect.  I lost sleep last night thinking about the far reaching implications involved.

BUSINESS IS WAR!

Or so some say.  This theory most aptly applies to your competitors.   Beating your competition is business 101.  Read Ocwen's Code of Ethics, specifically page 13 if you are in doubt.  I don't agree, but I can understand that.

What about your clients?  Do you treat them like you do your competitors?  Of course not.  Not to debate the concept  in depth here but that's how Ocwen is treating it's clients.

Who are Ocwen's clients?  They have two.  The homeowners that Ocwen services and the Note Holders that Ocwen collects mortgage payments for.  Ocwen has a page for it's Clients: LINK

SCREWING THE HOMEOWNER

You are a homeowner.  You didn't go to Ocwen to get your loan but the payment servicing was sold to them.  You find yourself in trouble and can't make your payments. 

You have options.  We explain 7 of these other options available to everyone of our short sale clients.  Typically one of them would be to sell the property for what you can, which might be less than what you owe.  This is a short sale.  Unfortunately for you, Ocwen has closed that door! 

While a short sale wasn't your only option, it might have been the best.  Chances are ,of the remaining 7 options, the last one might be the only one that works.  That's letting the home go to foreclosure.  That's what Ocwen is forcing you into.

SCREWING THE NOTE HOLDER

The Note Holder has employed the servicing to Ocwen.  It's part of what a servicer does.  They collect payments.   I would think Ocwen would have a fiduciary responsibility to best preserve the value of the portfolio the Note Holder has entrusted them with.

By refusing to entertain any short sale offers,  they are forcing more homeowners into foreclosure.  That process is costly.  To recoup any money the Note Holder will have to sell the property as an REO (bank owned).  Everyone knows that the net loss resulting from an REO is much higher.  That's why you hear that banks don't want your property.  That's also why they'll happily negotiate a short sale.  It's better to take a smaller loss in a short sale now than to take a larger loss later.

OCWEN HAS MOTIVE

I suggested yesterday that Ocwen is taking this course of action because their plans to sell the company fell through.  I proposed that they can collect more in fee income by forcing the home into foreclosure.  The greater loss by the resulting REO will not be Ocwen's.  It all transfers to the Note Holder.

Last night I realized there was more.  When a loan starts to get behind, Ocwen's servicing people will call the homeowner to remind them that they missed their payment.  When it gets severely behind, the loan file is sold to a collection company.  Did you know that Ocwen also runs a collection company?  That's right. The  Ocwen Recovery Group 

From their front page...

To make your loans worth more, it is critical to collect as much of your assets as possible - to recover more! Since 1988, Ocwen has focused on making loans worth more. We started by working on improving the liquidation rate of non-performing assets. We studied high performing collectors and utilized psychologists to determine best practices and then embedded this knowledge into our technology, recruiting and training programs. In 2007, Nationwide Credit, Inc. joined Ocwen, establishing Ocwen as the 5th largest collection agency in the nation. By implementing these best practices into our wholly owned global delivery centers, Ocwen and Nationwide Credit, Inc. have created the only proven "Global Collections Platform".

Is Ocwen's new plan to drive more collection contracts to their other company?  It certainly is a growth industry right now.

Just thinking...

 

Is Ocwen making a strategy move?

"We're not going to play anymore."

I just got off the phone with Loss Mitigation at Ocwen.  Correction, make that what used to be Loss Mitigation.  As of noon-ish today, Ocwen has left the Short Sale playing field.

According to my contact, (a Loss Mitigator) they announced to the department today via email, that they were done. 

Ocwen decided to stop negotiating all short sales. Period.

"None at all?", sheepishly I asked.

"Not a single one. Unless it was already approved", says he.

Curiously, yesterday the deal to sell Ocwen collapsed.

Here I am working on negotiating a short sale. I'm pretty sure the borrower did a Stated Income Loan and lied through his teeth about his income.   I'm also pretty sure he used someone else for the Social Security Number. (No, I didn't do his loan!). And I'm pretty sure he has a sub sub prime loan (two subs intended).    There's no loan modification in the books for this borrower.

I asked my LM guy, "So this is going to go to foreclosure, become an REO, and Ocwen will take a bigger loss down the road?"

"Yup, That sure appears to be what they are planning!"

Ocwen, who's shares tanked yesterday, is primarily a loan servicer.

As of December 31, 2006, OCN serviced 473,665 loans under 487 servicing agreements for over 40 clients. These clients include Wall Street firms with mortgage securitization platforms, such as Deutsche Bank, Lehman Brothers, Credit Suisse and Morgan Stanley, mortgage originators, such as Delta Funding, and governmental agencies, such as the United States Department of Veterans Affairs. Revenue from this segment comprised 80%, of its consolidated revenue, during the year ended December 31, 2006. (Reuters)

After I got off the phone I started thinking. This is all speculation on my part.

If Ocwen was the holder of the Note, they would have a vested financial interest in minimizing the overall losses. Accepting a short sale would minimize those potential losses. But Ocwen isn't the holder of the Note. Some Investor is.

In a Short Sale there is going to be a loss. Ocwen will negotiate for what they can, and then pass the remaining balance to the Investor. That loss will be absorbed by the investor. The key is not in the loss, but in the fee generation.  In a short sale, Ocwen can charge only a small amount of fees.

On a foreclosure, Ocwen can and will charge up the fees. The Admin Fee, Processing Fee, reloading the Stapler Fee, talking to Mueller Fee. Pretty much any fee they can come up with. These are fees they just couldn't generate with a short sale.

After the Auction, when it goes on the market as an REO... Assuming it sells for the same amount it might have had it been a short sale, Ocwen stands to make much more in fees than had they negotiated a short sale.  Following me so far?

Oh, and who pays for all the loss mitigator salary anyway? Ocwen!

So what do you do when the negotiations for your purchase fall through?

I can just see the BOD saying last night, "If we can't sell this pig of a company, we'll fire the Loss Mitigation Department, stop doing negotiations and rack up the fees! "

Of course, the REO probably won't sell for the amount they could have negotiated the short sale for. But who cares? Not Ocwen, They'll get their trumped up fees no matter what it sells for. It's the investor that's taking the hit - not them.

Ocwen is still in business. Are they not worried that by shooting their investors in the foot that they won't be able to attract new investors to service for?

Or since the buyout fell through, is the corporate plan to make as much as they can before closing shop?

2006 Net Income: 206 Million
2007 Net Income: 38 Million
4th Quarter Net LOSS: almost 7 Million!

Just thinking...