By James Sterngold
Ocwen Financial Corp., the embattled mortgage-servicing company,
on Monday rejected efforts by a group of large investors to remove
the firm as servicer of billions of dollars of residential
mortgage-backed securities.
In a letter, an Ocwen lawyer said the investors had made
"baseless allegations," and that their letter late last week had
"an inflammatory tone, with misleading content."
The Ocwen letter didn't address the specific claims in the
investors' letter, which was released late Friday. The investors,
who hold 25% of the private-label mortgage securities, include
asset managers Pacific Investment Management Co., Kore Capital LP,
MetLife Inc. and BlackRock Inc.
After falling sharply Friday, Ocwen shares rose about 16% Monday
morning. That still leaves them down about 50% in January.
The securities involved in the dispute had an original principal
balance of $82 billion but an Ocwen spokeswoman said they now have
a balance of $9 billion. Ocwen said it services a total of about
$400 billion in mortgages.
The back-and-forth is the latest fracas for Ocwen, which has
also had a string of regulatory problems in the past year.
After a series of claims by New York state's Department of
Financial Services that Ocwen had engaged in improper servicing
practices for distressed mortgage borrowers and had questionable
dealings with affiliated companies, the company agreed in December
to pay $150 million and William Erbey, its executive chairman and
largest shareholder, agreed to step down.
On Friday, Ocwen agreed to pay $2.5 million and retain an
auditor to review its mortgage-servicing practices in a settlement
with California's Department of Business Oversight.
In Ocwen's letter on Monday, Richard Jacobsen, an attorney with
Orrick Herrington & Sutcliffe LLP, said the investor group
didn't represent the interests of all investors in the securities.
He said the investors objected to Ocwen's legitimate efforts to
modify loans of distressed borrowers so they could remain in their
homes, and that the investors were on a "pro-foreclosure
campaign."
The investors responded later on Monday that Ocwen's claims were
inaccurate.
"Ocwen's suggestion that our clients oppose loan modifications
is false, " said Kathy Patrick, an attorney with Gibbs & Bruns
LLP, in a letter. She wrote that the investors had been working to
improve loan servicing in a number of different mortgage securities
trusts and that they "encourage modifications that work, because
those modifications benefit both investors and borrowers."
The letter insisted that the issue was that Ocwen's practices
worked against the investors and borrowers.
The investors said in their letter that they had conducted a
lengthy investigation and alleged that Ocwen had improperly
enriched itself, made imprudent loan modifications, and failed to
maintain adequate records or account for all the funds it was
handling for the investors.
The trustees for the securities have 60 days to consider the
claims and then decide whether to remove Ocwen as the servicer.
Write to James Sterngold at james.sterngold@wsj.com
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