Thursday turned out to be a nightmare for shareholders of Ocwen Financial Corp (NYSE:OCN), following the news that the federal and state regulators sued the home loan giant, alleging widespread errors that caused borrowers to lose money, and in some cases their homes.
According to the CFPB’s complaint, since 2014 Ocwen has violated the Bureau’s rules aimed at protecting homeowners from questionable practices and a previous consent order between the company, the Bureau, and 49 states and the District of Columbia that required Ocwen to revamp its mortgage serving practices.
Ocwen Financial shares reacted to the news, falling nearly 54% to $2.49 in Thursday’s trading session.
The company commented:
Ocwen strongly disputes the CFPB’s claim that Ocwen’s mortgage loan servicing practices have caused substantial consumer harm. In fact, just the opposite is true. Ocwen believes its mortgage loan servicing practices have and continue to result in substantial benefits to consumers above and beyond other mortgage servicers. The substantive allegations in today’s suit are inaccurate and unfounded. Indeed, the Company is unaware of the CFPB conducting any detailed review of Ocwen’s loan servicing files. Rather, the CFPB suit is primarily based on the CFPB’s flawed review of data and its self-serving conclusion about isolated instances where Ocwen self-identified ways we can do better.
Ocwen fully cooperated with the CFPB’s inquiries, and sought to find a fair and reasonable solution to the extent the CFPB identified legitimate concerns. Indeed, Ocwen continued to work with the CFPB until the suit was filed. Under these circumstances, Ocwen has a responsibility to its customers, shareholders, and employees to vigorously defend the Company against these unfounded claims.
Ocwen is recognized as the industry leader in responsible home retention through foreclosure prevention. A homeowner whose loan is serviced by Ocwen has a much better chance of avoiding foreclosure than if their loan is serviced by any other large mortgage servicer. This has been confirmed by independent third-party studies, which find that Ocwen has a superior record helping borrowers bring their payments current, stay current, and repay their mortgage.
Since January 1, 2008, Ocwen has granted over 735,000 loan modifications, including approximately 75,000 in 2016, and Ocwen is responsible for 20% of all modifications under the U.S. Department of the Treasury Home Affordable Modification Program, the federal government’s leading modification program. Ocwen also has provided billions of dollars in principal forgiveness to homeowners at risk of foreclosure. In addition, Ocwen has worked closely with its Community Advisory Council, a diverse group of national, regional, and local non-profit housing counseling, community development, and civil rights organizations, to maximize Ocwen’s positive impact in communities across the country.
Ocwen is proud of its corporate-wide commitment to a culture of integrity, transparency, compliance, and service. The Company continues to invest substantial resources to achieve and maintain its position as a leader in the industry. For example, Ocwen has increased compliance spending significantly since 2013, and added more than 350 team members in the risk, audit, and compliance areas focused on meeting our responsibilities.
The claims filed by the CFPB, however, completely ignore all of this. The alleged penalties and relief the CFPB seeks, if awarded, would likely harm the very consumers whom the CFPB is sworn to protect because they would needlessly divert money and time which would be better spent on helping our customers better afford and remain in their homes. This unreasonable action is an unfortunate example of overreaching by the CFPB. Many of the issues raised in today’s suit, including those related to the Company’s foreclosure policies and the effectiveness of its servicing system, were addressed by the National Mortgage Settlement (NMS), which the CFPB and Ocwen signed in December 2013. In addition, Ocwen believes the CFPB’s allegations concern only a small percentage of Ocwen’s 1.3 million customers, and Ocwen has repeatedly assured the CFPB that it will remediate, and in many instances already has remediated, any legal harm experienced by these customers. Given these facts, today’s suit can only be viewed as a politically-motivated attempt by the CFPB to grab headlines in reaction to the change of administration and recent scrutiny of the CFPB’s activities.
Ocwen fully supports government regulation that promotes principles designed to protect the best interests of our customers and promote consistent best practices across the marketplace. Ocwen believes this suit does not advance any of those principles.
Separately, we have just received various orders from state mortgage regulators, and are in the process of reviewing them in detail. We will respond promptly to all of the matters raised after a full review. We believe we are properly licensed in all of the states where we conduct business.
On the ratings front, OCN has been the subject of a number of recent research reports. In a report issued on April 10, Keefe analyst Bose George reiterated a Hold rating on the stock, with a price target of $5.00, which implies a 73% upside from current levels. On February 24, Oppenheimer’s Ben Chittenden reiterated a Hold rating as well, without suggesting a price target.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Bose George and Ben Chittenden have a yearly average return of 15.4% and a loss of 0.4% respectively. George has a success rate of 74% and is ranked #56 out of 4559 analysts, while Chittenden has a success rate of 48% and is ranked #3352.
Ocwen Financial Corp. is a financial services holding company, which through its subsidiaries engages in the servicing and origination of mortgage loans. It operates through the following segments: Servicing, Lending, and Corporate Items and Other. The Servicing segment engages in residential servicing business, which offers residential and commercial mortgage loan servicing, special servicing and asset management services. The Lending segment involves in the originating and purchasing conventional and government-insured residential forward and reverse mortgage loans mainly through correspondent lending arrangements, broker relationships and directly with mortgage customers. The Corporate Items and Other segment include revenues and expenses that are not directly related to other reportable segment.