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Embattled Ocwen expects loss due to probe penalties

By
Kevin Dugan
Published Feb. 5, 2015, 10:52 a.m. ET

Ocwen’s financial pain is just beginning.

The embattled mortgage servicer expects to record a loss for the fourth quarter and full year because of penalties and higher servicing costs, the company warned on Thursday.

Ocwen will add $50 million more in legal expenses — on top of the $100 million it set aside in the third quarter — for costs tied to a probe by the New York Department of Financial Services, CEO Ron Farris said in a letter to shareholders.

That investigation by Benjamin Lawsky’s office led Ocwen founder Bill Erbey to step down as executive chairman in December. He also agreed to quit the boards of four companies with financial ties to Ocwen.

Lawsky’s review found serious issues with the company’s mortgage-servicing practices, including a backdated-letter scandal that deprived potentially thousands of borrowers of a chance to rework their troubled home loans.

Aside from legal costs, Ocwen has about $110 million in expenses related to payments it couldn’t collect during the last quarter, nearly double the cost from the previous three-month period, according to the letter.

“As a result of the items just discussed and other fourth-quarter events, we expect to record a loss in the fourth quarter of 2014 and for the total year,” Farris said.

While the company expects its worst quarter ever, it has about $249 million in cash and expects to raise more money through selling some mortgage servicing rights, he added.

“We anticipate that the level of these types of expenses will decrease significantly in 2015 as we have substantially cleared out legacy issues related to acquisitions and other servicing transfers,” he said.

That news sent shares up 8 percent in early Thursday trading to $7.15. The stock has lost nearly 90 percent of its value in the past year amid regulatory scrutiny.

Ocwen was being investigated by 15 states and was the subject of 21 investigations at the end of last year, according to the letter. The company said Thursday it expects that two of the matters will result in fines of less than $1 million.

Farris also dismissed two claims against Ocwen and a related company that its regulatory run-ins amount to a technical default on $925 million in debt. The creditors are demanding an additional 3 percent in annual interest payments.

Farris said such claims are an “ill-conceived but quite transparent campaign by these particular investors to stop loan modifications and instead foreclose and evict as many struggling homeowners as quickly as possible.”