(Adds background on Lawsky's actions against Ocwen, previous comments from Ocwen executives)
By Karen Freifeld and Peter Rudegeair
April 21 (Reuters) - New York's banking regulator is probing Ocwen Financial Corp, which collects mortgage payments, for possibly over-charging borrowers and investors to auction off foreclosed properties.
Benjamin Lawsky, superintendent of New York's Department of Financial Services, said in a letter to Ocwen on Monday there were "significant concerns" the company and an affiliate, Altisource Portfolio Solutions SA, were engaged in so-called "self-dealing" through an online auction site called Hubzu.
Self-dealing is when a company represents its own interests in a transaction, sometimes to the detriment of its clients' interests.
Ocwen, the fourth largest mortgage servicer in the United States in 2013, uses Hubzu, an Altisource Portfolio subsidiary, to auction off borrower homes facing foreclosure and foreclosed investor-owned properties.
Hubzu charges an auction fee of 4.5 percent when chosen by Ocwen to host foreclosure or short sale auctions, compared to a fee as low as 1.5 percent when it competes for business on the open market, according to Lawsky's letter.
The relationships raise "concerns regarding self-dealing," and create "questions about whether those companies are charging inflated fees through conflicted business relationships, and thereby negatively impacting homeowners and mortgage investors," the letter said.
In early February, Lawsky stopped Ocwen from buying servicing rights on 184,000 home loans with a total principal balance of $39 billion from Wells Fargo & Co. .
Later that month, the agency requested information about potential conflicts of interest between Ocwen and four affiliates, including Altisource Portfolio, that the regulator said might encourage them to push borrowers into foreclosure.
Ocwen did not immediately respond to a request for comment.
Lawsky is among regulators probing mortgage payment collectors like Ocwen, whose explosive growth since the 2007-2009 financial crisis has raised questions about their handling of home loans. The specialty companies have taken over much of the mortgage servicing business from traditional banks.
William Erbey, Ocwen's executive chairman, said on an April 17 earnings conference call that Ocwen will not seek to acquire any new portfolios of servicing rights until it resolves matters with New York's Department of Financial Services.
Lawsky's letter asks Ocwen to provide more information on the fees Hubzu charges on auctioning properties serviced by Ocwen and those not serviced by Ocwen.
The Department of Financial Services also sent a letter to mortgage servicer Nationstar Mortgage LLC in March requesting information about its servicing practices after receiving hundreds of consumer complaints. (Reporting by Karen Freifeld and Peter Rudegeair; Editing by Andrew Hay and Paul Simao)