Lack of Mortgage Servicer Regulations Raises Concern
Banks perform a variety of complex and important financial functions, with the potential for liability to the average American (particularly homeowners) very great if something goes wrong.
Too often, things do go wrong, as evidenced by the housing market crash and subsequent foreclosure crises that ensued. Banks played a large role, which is why the federal government has insisted upon such heavy regulation of these companies.
Now, in the wake of even more sanctions and regulations imposed on lenders in recent years, our Miami foreclosure lawyers have witnessed the emergence of a new type of hybrid financial institution – one that so far successfully evades the kind of regulatory oversight imposed on formal banking firms.
A perfect example of this is Ocwen Financial, a mortgage servicing firm that now services about one in every four subprime mortgages in the U.S. The firm and its seemingly dubious ties were recently profiled in The New York Times.
On the surface, Ocwen’s business seems fairly benign: Collect mortgage payments from homeowners and funnel those payments to lenders.
However, the head of Ocwen, William C. Erbey, is a billionaire who has grown the business into an extremely complex financial firm. On top of concerns that Ocwen is gaining a reputation for mishandling a number of the mortgages it services, eyebrows have been raised over the connections that Ocwen has with four other publicly-traded firms that are chaired by Erbey. These companies have functions that range from renting out foreclosed homes to purchasing loans on which payments have defaulted.
While technically serving very different purposes, these firms are not altogether separate. In one example cited by the Times, a company called Altisource Portfoloio Solutions, which manages investor portfolios, employed the same risk manager as Ocwen. That individual was reporting directly to Erbey in both of those positions.
Additionally, Ocwen holds contracts with other companies owned by Erbey. There are a fair number of critics on the reported lack of transparency with these contracts, and some shareholders have raised concerns about whether those in some companies are benefiting at the expense of shareholders in other firms.
At best, this type of corporate structure is unusual.
Others believe there is more to it. For example New York’s superintendent of financial services has issued a demand to Ocwen for more information regarding the details of its relationships with these other firms. This was the same official who recently stopped the transfer of nearly $40 billion in mortgage servicing rights from Wells Fargo to Ocwen, citing concern that Ocwen’s connections might create incentives that would harm certain homeowners and push some borrowers into foreclosure unnecessarily.
And yet, the number of mortgages the company handles has ballooned by 600 percent in the last four years. This is in large part due to the fact that banks have had to spend a lot of money to comply with regulatory requirements, which were handed down as a means to curtail the kinds of practices that led us to a housing market crisis in the first place. Banks are still bound by those rules. Companies like Ocwen aren’t. So banks are selling subprime servicing rights to Ocwen, and companies like it.
One of Erbey’s latest business models preys upon the most downtrodden in the housing market. It involves a singular company that snaps up large numbers of distressed mortgage loans. If (and more likely – when) those loans go into foreclosure, the company can then turn around and rent out those homes for a profit.
Of course, this is highly detrimental to the distressed homeowner. He or she is put in a situation wherein the mortgage servicer has an interest in making sure they lose the home. This might be good for Erbey’s bottom line, but clearly not so much for everyone else’s.
If you’re battling foreclosure in Miami or the surrounding areas contact Jacobs Legal for a confidential appointment to discuss your rights. Call 305-358-7991. Also, don’t miss Miami Foreclosure Attorney Bruce Jacobs on 880AM/the Biz, every Wednesday from 5 p.m. to 6 p.m. on “Debt Warriors with Bruce Jacobs,” discussing foreclosure topics that matter to YOU.