Lawsky targets Ocwen mortgage 'conflicts'

New York's top financial regulator has increased the pressure on Ocwen Financial, one of the country's biggest mortgage servicers, raising concerns about "self-dealing" and "conflicted business relationships" with affiliated companies.

Benjamin Lawsky, superintendent of financial services in New York, said he had found a "troubling" practice of an Ocwen affiliate charging high fees for auctioning seized properties.

The fee charged by Hubzu, an online auction site affiliated with Ocwen, was three times higher when selling properties serviced by Ocwen than when it was competing for auction business, Mr Lawsky found.

"Our review has raised concerns surrounding conflicted business relationships between Ocwen and Altisource Portfolio," Mr Lawsky wrote. He said Hubzu would charge 4.5 per cent of the sale price to purchasers of properties serviced by Ocwen compared with as little as 1.5 per cent on other properties.

"In particular, it creates questions about whether those companies are charging inflated fees through conflicted business relationships, and thereby negatively impacting homeowners and mortgage investors," he wrote.

"Alternatively, if the lower fees are necessary to attract non-Ocwen business on the open market, it raises concerns about whether Ocwen-serviced properties are being funnelled into an uncompetitive platform at inflated costs."

Ocwen has been one of the main beneficiaries of tougher regulation and previous losses among US banks, allowing it to seize a greater proportion of the market from retreating companies such as Bank of America.

The review by Mr Lawsky is one sign that regulators are turning their attention to the non-bank mortgage providers.

Ocwen did not immediately have a comment, but responded to a previous inquiry from Mr Lawsky's Department of Financial Services by saying: "These agreements are fully disclosed in our public filings, and we believe them to be on an arms-length basis. We look forward to addressing the matters raised by NY DFS and will fully co-operate."

Shares in Ocwen were down 2 per cent to $38.23 in early afternoon trading.

Ocwen has expanded rapidly in recent years as it snapped up billions of dollars worth of assets that give the company the right to collect payments on thousands of American home loans. In 2009 it spun off Altisource, which runs Hubzu and sells and rents homes that have been foreclosed on.

The servicing firm's practices have been under growing regulatory scrutiny. This month, DFS halted indefinitely Ocwen's purchase of servicing rights from Wells Fargo, citing concerns about its ability to handle the increased servicing.

In December, Ocwen agreed to provide $2bn in loan modifications to homeowners to settle with the Consumer Financial Protection Bureau, which said it found years of "significant and systemic misconduct that occurred at every stage of the mortgage servicing process" including foreclosures.

DFS said previous discoveries cast "serious doubts" on Ocwen's public statement that it had a strictly arms-length relationship with the affiliated companies.

Ocwen has built a real estate empire that extends from its headquarters in Atlanta, Georgia, to offshore staffing centres in India and Uruguay, corporate tax havens in the Cayman Islands, where Home Loan Servicing Solutions is based, and Luxembourg, where Altisource is incorporated.

Ocwen faces challenges that go beyond regulators. Since servicing mortgages has a finite lifespan, Ocwen has been seeking out new businesses to diversify its income, including mortgage origination and servicing higher quality "prime" mortgages. Last week it sold a new type of bond to help finance its growth.

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