Ocwen's Mortgage Insurance Practice Under NY Review - Analyst Blog

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Ocwen Financial Corp. ( OCN ) has recently been embroiled in a legal mess. The New York's Department of Financial Services (DFS) has charged it for ambiguously directing $65 million in fees to one of its affiliates - Altisource Portfolio Solutions SA. Ocwen has allegedly paid questionable fees to the company for purchase of force-placed insurance from Southwest Business Corp, the San Antonio, TX-based diversified financial services company.

Notably, force-placed insurance originates in case a mortgage borrower is unable to pay home insurance premiums. Then, the mortgage lender or the mortgage-servicing company comes to the fore and raises the mortgage payments so as to pass the premium amount on to the borrowers, often overcharging them in the process.

Also, Ocwen, which was responsible for collecting home loan payments, is accused of overcharging the borrowers who were already struggling to make regular mortgage payments. Per the charges, the extra fees charged will generate unethical revenues for Altisource.

In fact, Ocwen has been under regulatory scrutiny since 2012 when the DFS sanctioned a monitor within the company. In Feb 2014, Ocwen's intended purchase of $2.7 billion mortgage-servicing rights from Wells Fargo & Co. ( WFC ) was revoked indefinitely by the DFS. Few months prior, the Consumer Financial Protection Bureau (CFPB) indicted Ocwen for administrative errors, which included mistakenly forcing borrowers into foreclosure.

Presently, Ocwen faces challenges that go beyond litigations. It will require substantial efforts by the company to repair the damage and it may call for a complete overhaul of its businesses.

Currently, Ocwen carries a Zacks Rank #5 (Strong Sell). Two better-ranked mortgage-investment firms include Federal Home Loan Mortgage Corp. ( FMCC ) and Home Loan Servicing Solutions, Ltd. ( HLSS ). Both these firms hold a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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