(Adds comment from Ocwen, updates share price)
By Peter Rudegeair and Karen Freifeld
NEW YORK Aug 4 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,
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