The bad times are yet to be over for mortgage servicing company – Ocwen Financial Corp. OCN. While the stock of the company tumbled over 38% following the disappointing fourth-quarter 2015 results, the company now disclosed a new Securities and Exchange Commission (“SEC”) probe into its operations in an annual securities filing.
According to the filing, Ocwen was informed of the SEC investigation on Feb 11, 2016, “relating to fees and expenses charged in connection with liquidated loans and real estate owned (REO) properties held in non-agency residential mortgage-backed securities (RMBS) trusts.”
Prior to this, Ocwen had received a letter from the SEC on Feb 10, 2015, regarding an investigation relating to the use of collection agents by mortgage loan servicers. The company believes such a letter was also sent to other companies in the servicing industry.
During Ocwen's conference call, President and Chief Executive Ronald Faris was questioned about the investigation and whether it relates to fees payable to Altisource Portfolio Solutions.
In response, Faris said that could not comment on the SEC investigation but “feel confident that the fees that are part of the servicing business that are either assessed to borrowers or passed on to RMBS investors are monitored closely by master servicers and trustees. We’ve had various third parties look at them.”
Though Ocwen said it is cooperating with the SEC on this matter, the company’s endless tryst with the regulators can trigger fresh concerns amid investors.
Ocwen’s run-in with regulators has been going on for quite some time now. Starting December 2013 with the $2-billion foreclosure settlement deal to getting penalized for misstating 2013 and 2014 quarterly results in January 2016, the company’s stock has been witnessing a prolonged downward movement.
Moreover, on the earnings front too, things look dismal. Though the company had projected to incur a loss in 2015, the magnitude of the same took the market by surprise. To worsen the situation, Ocwen expects to incur a net loss in 2016, indicating no respite for investors in the near term.
While Ocwen’s initiatives to restructure its servicing portfolio and strengthen its balance sheet by reducing corporate debt are impressive, we remain concerned about the impact of mounting compliance and monitoring expenses, apart from the endless regulatory probes, into the company’s near-term financials.
Currently, Ocwen carries a Zacks Rank #3 (Hold). Some better-ranked companies in the financial sector include Walker & Dunlop, Inc. WD, Saratoga Investment Corp. SAR and TriplePoint Venture Growth BDC Corp TPVG. All these stocks hold a Zacks Rank #2 (Buy).
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