A little over a year ago, Ocwen was the darling of hedge funds everywhere, with such luminaries as Steve Eisman pitching it at the Ira Sohn 2013 idea conference. Since then things went downhill and fast for the mortgage servicer, which after being branded "the "Next Generation Subprime Lender" by Moodys earlier in 2014, become the primary target of the NY State regulator [4]. However, while the company's troubles with the state of New York were not life ending, as one major settlement could put everything in the past, the latest development out of the state of California may have just killed Ocwen's (whose disingenuous name comes from spelling Newco backward) business model, after the LA Times reported the state was "seelomg to suspend the mortgage license of Ocwen Financial."
From LA Times [5]:
The action is the latest against one of the nation's biggest mortgage servicers and raises the level of concern over continuing problems in billing and collecting monthly payments from borrowers, especially those having financial problems.
Investigations have cropped up nationwide into Ocwen and other nonbank servicing firms that have acquired mortgage billing portfolios from major banks, which previously faced state and federal probes.
Banks began shedding the business after many were snared in the nationwide fiasco over lost and mishandled foreclosure paperwork, robo-signed foreclosure documents and other abuses.
California's action accuses Ocwen of defying requests for information by the California Department of Business Oversight, which licenses nonbank mortgage lenders and providers of collection and foreclosure services.
Ocwen, which specializes in handling troubled home loans, is the largest mortgage servicer not affiliated with a bank and the nation's fourth-largest servicer overall.
Today California, tomorrow every other state.
So would such a historic license termination mean for the company? Nothing short of lights out in the biggest mortgage state: "Losing a California license would mean that Ocwen, based in Atlanta, would have to sell its rights to handle bill collection and foreclosures in the state, said Tom Dresslar, spokesman for the state agency."
As LA Times reminds us, CA is Ocwen's business source of business. "As of Sept. 30, the company serviced 378,132 home loans in California with unpaid principal of $95 billion. That amounts to 15% of Ocwen's total loans and 23% of the total balance due."
[6]
It also means that the stock, which was down 25% as of moments ago, still has some 75% downside to a company which the "smartest money in the room" could not stop fawning over as recently as the fall of 2013 when the stock was trading around $60/share and about which "brilliant" investor Steve Eisman said "once in awhile you come across a company that is completely and utterly mis-priced [7]." Ironically, he was absolutely spot on. He just got the direction wrong.
As for Ocwen? Just call it Ocdaed.
