In the annals of mortgage industry criticism, there is one firm that seems as equally loved as it is hated. During investor presentations, Ocwen Financial is often praised for its innovative business models. On the sidelines, however, Ocwen gets dissed. Often.
But nothing really seems to stick. Areas of criticism include the extensive use of offshoring call centers.
Ocwen was established in 1988, becoming a public company in 1996. The company is headquartered in West Palm Beach, Fla., and has multiple servicing locations in the United States (in Florida and Texas), India and Uruguay.
According to Morningstar Credit Ratings, which rates Ocwen’s India operations as stable, more than 53% of the workforce is based offshore. Ocwen’s business strategy is an acquisitive one, with notable servicing-business acquisitions in the past 24 months, including Homeward Residential, ResCap, HomEq Servicing, Litton Loan Servicing and Saxon Mortgage. During the period from 2011 to 2013, its servicing portfolio grew from some 521,000 to more than 2.8 million loans.
Ocwen serviced a portfolio of 2.8 million loans with an unpaid principal balance of $459 billion, making it the largest nonagency servicer in the U.S.
In terms of collateral performance of its subprime book, Ocwen is pretty much on par with its colleagues.
According to Deutsche Bank, which recently crunched CoreLogic data, serious delinquencies (+60 days) are coming in at 25% for Ocwen — which is on the low end.
By way of comparison, Bank of America and Citibank hover around the 40% mark. PHH Mortgage and GMAC Mortgage weigh in with less than half the delinquencies that Ocwen saw, but this is probably better explained by way of volume. Delinquencies are at similar levels for Saxon, Homeward, Nationstar and Chase.
Similar trends are observable for REO timelines, refinance speeds and other metrics. In fact, there is only one subject area in which Ocwen stands out. Its cumulative principal modification rate is by far and away larger than anyone else in the space. In fact, it’s 10% higher than anyone else — just north of 45%.
“Their business model is rock solid,” said one source. “You may not like it and I may not like it, but (Ocwen) couldn’t care less.”
At this point, we should take pause for an editor’s note: HousingWire did not contact Ocwen for comments on this op-ed. After all, one executive once responded to an inquiry from my reporter with: “Off the record, no comment.” To be clear, all HousingWire sources are protected.
It’s true. I don’t like it, if mainly for the kind of stonewalling described above.
But investors love it.
As of press time, stock performance year-to-date on the HW 30 stock index was up 52.46%.
COMPLAINTS
So what are some specific complaints? “I have heard from Ocwen employees who say that the company’s offshore operation isn’t exactly a panacea; that simple procedures take much longer than they should; and that communications between the call centers and the U.S. operations are often very difficult due to time zone issues and language problems,” a source said.
“Fairly typical complaints about offshore outsourcing (if you’ve ever called a help desk and got someone on the phone whose accent made them difficult to understand, you’ve experienced what the Ocwen folks are referring to). If they have trouble communicating effectively with each other, I have to wonder what communications with the average customer might be like.”
True, the trend of offshoring mortgage servicing caught the attention of ratings giants in recent years. Inevitable questions surfaced about how the firms maintain quality control. Do communication barriers hinder discussions with troubled borrowers, as the above source notes?
Despite market analysts citing these concerns in the past, Morningstar Credit Ratings affirmed its current residential vendor rating for Ocwen’s India servicing operations — Ocwen Financial Solutions Pvt. Ltd.
So there are no special complaints about the offshoring, the service or the stock. Well, what about the bonds?
Investors in the residential mortgage-backed securities serviced by Ocwen say they’ve got problems.
“There was servicing that GMAC and BofA owned; they sold it to Ocwen. But they were loans we owned in their securities,” said another source.
“So I got this report on my legacy portfolio that said my delinquencies, my 60-90 days, are now going to 90+ and that the loans that were going to foreclosure are being held without going into foreclosure.
“And when I asked the question ‘Why is that?’ they said (that) Ocwen just started servicing the loans and, basically, over the last 30-60 days; and they’re really having difficulty because they’re moving these borrowers accounts offshore. They’re changing their attorneys and, as a result, it’s just really causing problems for the loss-mitigation collection activities on the portfolio that we own.”
And now we are reaching the meat of Ocwen’s troubles.
The average time it takes a mega servicer to board mortgage servicing rights is a concern for analysts.
Why?
A rough transfer of MSRs can create backlogs and servicing issues that impact borrowers, while also creating litigation and regulatory risks.
In an Ocwen 8-K securities filing with the Securities and Exchange Commission, Ocwen provided an MSR boarding list, which shows the servicer’s average boarding time when transferring certain assets.
Some of the boarding of assets occurred in as little as 11 days, while at least one other transaction stretched out to 150 days. In that particular deal, Ocwen was boarding 87,000 loans with an unpaid balance of $14.7 billion in late 2011. The MSRs involved were linked to Litton loans.
BOARDING
Meanwhile, the boarding project that took only 11 days involved Freddie Mac loans acquired back in 2009 — 24,000 of which were boarded with a total UPB of $4.2 billion.
The boarding times count the approximate days it took from notice to boarding, Ocwen’s report said.
The firm’s fourth-quarter 2012 acquisition of Homeward Residential loans took approximately 60 days to board, with the portfolio carrying an unpaid principal balance of $55.6 billion. There were about 300,000 loans involved in that particular transfer.
Meanwhile, a massive Fannie Mae bulk MSR transfer took 90 days to complete last year, while it took the firm 120 days to board 1.7 million loans acquired from the ResCap portfolio. However, ResCap was placed in bankruptcy, which created a different situation when Ocwen boarded that batch of MSRs, since they were pulled out of a bankruptcy situation.
In the third quarter, Ocwen reported a 60-day boarding time frame for 19,400 large bank subservicing loans that were valued at $3 billion, with 19,400 loans moved onboard.
Any conspiracy theorist can argue that these offshoring practices and safe havens are shifting the risk out of investor eyes.
Similar points of contention do not seem as broadly extended to Ocwen’s competitors, and that is something that should change.
It’s no longer important to take Ocwen personally, even though so many can and do. What is important is to recognize its weakest link — and see if they do anything to try to fix it.
