Ocwen Financial Corp (NYSE: OCN) shares
crashed 50 percent Thursday after more than 20 states issued cease-and-desist orders against the company related to alleged
mismanagement of escrow accounts and the company’s poor financial standing.
In addition, the Consumer Financial
Protection Bureau (CFPB) has filed a lawsuit against Ocwen for similar alleged abuses.
The CFPB claims it has “uncovered substantial evidence that Ocwen has engaged in significant and systemic misconduct at nearly
every stage of the mortgage servicing process.”
See Also: Ocwen Hit With
Several Cease-And-Desist Letters From State Regulators
Following the legal actions against the company, Piper Jaffray recommended traders short shares of REIT New Residential
Investment Corp (NYSE: NRZ), which owns some of
Ocwen’s servicing rights.
In its most recent 10-K filing, New Residential said regulatory action against Ocwen “could increase our financing costs or
operating expenses, reduce our revenues or otherwise materially adversely affect our business, financial condition, results of
operations and liquidity.”
For New Residential investors, Thursday's news may have been a worst-case scenario in terms of the REIT's relationship with
Ocwen.
Ocwen’s loan servicing business increased
eight-fold in the years following the 2008 financial crisis when struggling big banks were happy to shed their subprime
mortgage businesses. The CFPB alleges that Ocwen failed to integrate the businesses it acquired properly, resulting in inaccurate
accounting of payments, taxes and insurance from escrow accounts.
New residential shares closed down 7.6 percent at $16.39 Thursday, after hitting an intra-day low of $15.37.
In response to the allegations, Ocwen released a statement denying the CFPB’s claims.
“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,” the statement reads.
Ocwen's full statement can be
found here.
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