UPDATE 2-NY banking regulator questions Ocwen's ties to affiliate

Mon Aug 4, 2014 6:16pm EDT

(Adds comment from Ocwen, updates share price)

By Peter Rudegeair and Karen Freifeld

NEW YORK Aug 4 (Reuters) - New York's top financial regulator said on Monday that Ocwen Financial Corp,, a company that collects home loan payments, may be funneling as much as $65 million in questionable fees to an affiliate, in a potential conflict of interest.

Benjamin Lawsky, superintendent of New York's Department of Financial Services, sent a letter to Ocwen questioning regular payments the company indirectly makes to Altisource Portfolio Solutions SA, which is owned by Ocwen officials.

The payments are related to referrals for Ocwen's purchase of force-placed insurance from Southwest Business Corp, an insurance agent, Lawsky said.

Force-placed insurance is a type of coverage that kicks in when a mortgage borrower cannot afford to pay for home insurance. The mortgage lender, or the company collecting the home loan payments, passes the costs of these premiums onto borrowers. For years authorities have been looking at cases where borrowers are overcharged for the policies.

Ocwen essentially pays commissions and technology support fees to Altisource for the referrals to Southwest Business, Lawsky said.

A spokesman for Ocwen said in an emailed statement that the company will continue to cooperate with Lawsky's office and provide the requested information, as it has done with all previous requests from the regulator.

Lawsky said that insurance agencies affiliated with mortgage servicing companies like Ocwen have an incentive to purchase force-placed insurance with high premiums, which "can push already struggling families over the foreclosure cliff."

"The contracts, dated as of June 1, 2014, indicated that Altisource will generate significant revenue from Ocwen's new force-placed arrangement while apparently doing very little work," Lawsky wrote in the letter.

He said that the role Ocwen's executive chairman, William Erbey, played in approving the arrangement "appeared to be inconsistent" with past statements saying that he recuses himself from decisions involving affiliates.

Ocwen has come under increasing scrutiny from New York regulators since its purchase of mortgage servicing rights on $39 billion worth of Wells Fargo home loans was indefinitely halted in February. Weeks later, Lawsky sent a letter to Ocwen raising questions about whether ties that its executives had to related companies, including Altisource, encouraged them to push borrowers into foreclosure.

Ocwen's shares, which have fallen more than 50 percent this year, closed 2.5 percent lower at $26.98.

Lawsky's department has been investigating abuses in the force-placed insurance industry since October 2011. In March 2013, Assurant Inc, the largest U.S. force-placed insurer, agreed to pay $14 million and refund premiums to some homeowners to resolve an investigation that found improper relationships and payoffs to other financial companies had resulted in higher premiums for borrowers.

In the last year, Lawsky's office has instituted consumer protections over force-placed insurance, but Monday's letter said that some companies are looking to side step them.

In July, the regulator stopped mortgage servicing firm Nationstar Mortgage Holdings Inc from going ahead with a force-placed insurance arrangement it proposed, according to a person familiar with the matter. A representative for Nationstar declined to comment. (Reporting by Peter Rudegeair and Karen Freifeld; Editing by Leslie Adler)

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