22 December 2014

It's Been 6 Years, and Finally a Regulator Forces a CEO to Resign

Rather unsurprisingly, the regulator in question, is New York Superintendent of Financial Services Benjamin Lawsky, who has had nothing to do with the Obama administration.

He went after the astonishingly corrupt and incompetent mortgage servicer Ocwen, and uncovered self-dealing by the CEO that forced his resignation.

It would have been nice if William Erbey were breaking rocks somewhere, but it is a start:
Let’s say you run a company whose misdeeds are splashed across the front pages of the business section on an almost weekly basis. You might reasonably expect to be fired without delay. But then let’s also stipulate that you’re in the financial services industry. Recent history suggests you’ll be able to keep your job and your handsome bonus, and that even if law enforcement officials penalize the company for improprieties, somebody else—like your shareholders— will pay those fines, leaving you to continue your charmed life unscathed.

William Erbey, the billionaire chairman of the mortgage servicing giant Ocwen, probably thought that would be his fate as well, but he didn’t anticipate the determination of New York Superintendent of Financial Services Benjamin Lawsky. On Monday, Lawsky announced Erbey would step down chairman of Ocwen and four related businesses, as part of the settlement of an investigation into the company’s sad enduring legacy of ripping off homeowners.

It isn’t a prison sentence. But on the spectrum of accountability for financial industry executives, “forced to resign” beats “suffered no consequences while staying in power.”

Lawsky has been chasing Ocwen for several years. A mortgage servicer handles day-to-day operations on loans, from collecting monthly payments to making decisions after a default. Ocwen has grown almost ten-fold since 2009 by purchasing the rights to service distressed loans from the likes of JPMorgan Chase, Bank of America, and Ally Bank. Big banks have engaged in a fire sale of their mortgage servicing rights, because of increased compliance standards for servicing, and because of new bank capital rules that make servicing loans costly. As a non-bank, Ocwen has more wherewithal to handle mortgage servicing, and this has made it the 4th-largest servicer in America. ………

………

The federal Consumer Financial Protection Bureau found similar problems with Ocwen and reached an agreement on a $2.1 billion settlement. But most of the money went toward modifying loans that Ocwen serviced but didn’t own, allowing it to pay the fine with other people’s money.

More recently, Lawsky uncovered more Ocwen secrets. He discovered that four other public companies chaired by Ocwen chairman William Erbey have close business relationships with the mortgage servicer (Erbey is also the largest individual shareholder for all the companies). One subsidiary hosts nearly all of Ocwen’s online auctions; another handles all Ocwen post-foreclosure real estate transactions. So Ocwen profits by funneling default-related business to closely associated companies, providing an incentive to push borrowers into default.

Lawsky also found that Ocwen backdated letters to borrowers, making it impossible for them to challenge denials of their mortgage modifications within a specific time frame. He also investigated whether Ocwen stalled short sales, where homes get sold for less than the balance on the mortgage, in order to collect additional fees.
And here is the special sauce:
This time, Lawsky did not spare top executives. Erbey will resign both Ocwen and the four related companies by January 16, and subsequently hold “no directorial, management, oversight, consulting, or any other role at Ocwen or any related party.” Any other Ocwen employees also working for one of the other four companies will have to drop those responsibilities.

Under the agreement, Ocwen will add two new independent board positions, and an Operations Monitor will work directly with the board on oversight functions, and determine whether other senior management will have to be fired. Ocwen cannot acquire other mortgage servicing rights without the consent of the Operations Monitor.

Ocwen will also pay $150 million to New York homeowners harmed by the company. Instead of a “soft-dollar” promise of mortgage modifications that Ocwen can pass on to the owners of the loans they service, these are cash penalties—$100 million to the Department of Financial Services for housing counseling and community redevelopment programs, and $50 million to be split by Ocwen foreclosure victims, with $10,000 for each borrower on whom Ocwen completed foreclosure, and the rest handed out to those with active foreclosures in process. Ocwen will also have to re-evaluate borrowers in foreclosure after paying the penalty, “in light of their improved financial condition resulting from such payment.”

Ocwen cannot take a tax deduction on any of these payments, per the agreement. The company also agreed to provide all of its New York borrowers with their complete loan files upon request, along with assurances to detail reasons for any denials of mortgage relief. As the loan files represent evidence in private borrower misconduct litigation, it could expose Ocwen to further legal headaches.
Seriously, if there had been any appetite for even a cursory investigation of the banksters by Obama and His Evil Minions, we would have seen a lot more of this.

Then again, if we did that, Obama would not be able to get his 6 figure speaking gigs from Wall Street execs when he leaves offices.

One has to have priorities.

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