DS News

66 Delgado, the president and CEO of e Five Star Institute, said in e Wall Street Journal. "You have to make sure that you're adequately set up to provide the highest level of service." Ocwen's pummeling continued into the start of the new year. In January, the state of California threatened to revoke Ocwen's license to practice business in the state amid allegations that the company would not cooperate with an investigation into how it conducts business. California's Department of Business Oversight told Ocwen that it would halt its operations in the state after the company failed to provide documentation about its compliance with California's Homeowner Bill of Rights. e bill, which went into law at the start of 2013, prohibits certain mortgage servicing practices—such as dual-tracking—and sets in place requirements for single points of contact and document verification, among other provisions. Department spokesperson Tom Dresslar confirmed the report, saying that Ocwen's lack of response comes despite repeated requests from the state. "We're the regulator, and we have a responsibility to consumers to ensure that our licensees are complying with laws," Dresslar said. "ey're not providing us the information we need to do our job." Dresslar explained that if Ocwen's license is suspended, the company would be given a "reasonable transition period" to find alternative servicers for its existing portfolio. It would not be allowed to take on new loans. If Ocwen turned over the information the department is seeking, "we'd have to determine at that point how to proceed," he added. Ocwen president and CEO Ron Faris said the company has dedicated "substantial resources" toward satisfying the state's request and believes it has provided the necessary information. He also pointed to Ocwen's efforts to help California's homeowners, including the completion of 13,000 loan modifications and 3,500 short sales in 2014. To Ocwen's credit, the company maintains that it has complied with state laws and is cooperating fully with the investigation, according to reports. "We expect that we will receive follow- up requests or clarifications and that further document and information exchanges may take place," Faris said. "We expect our ongoing cooperation will result in a satisfactory outcome for all parties." Companies with ties to Ocwen are also feeling pressure from the increased scrutiny on the firm. In the past year, Altisource Portfolio Solutions—which spun off from Ocwen in 2009 and has kept close ties in the years since—has seen its stock rise and fall with each new development. In a January conference call with investors, the leadership at Altisource (minus Erbey, who had previously served as chair in a dual role) acknowledged that Ocwen's near-term growth has become much more limited as a result of its run-ins with regulators. Shepro used a portion of the call to reaffirm Altisource's support for the embattled Ocwen, adding that his company expects to continue earning by providing services on Ocwen's existing non-GSE portfolio. At the same time, he previewed Altisource's 2015 strategy, which focuses on expanding offerings into more diverse areas. "e leadership team is committed and more focused than ever on our diversification and growth initiatives while supporting Ocwen," he said. Altisource shares traded substantially higher after the investor call. For its part, Ocwen is at a crossroads. As of this writing, its stock closed at 7.98, down from 50.45 only one year ago. "We view the settlement as an opportunity for a fresh start for Ocwen," Lawsky told e New York Post. "We want to see the company improve and are committed to working constructively with its new leadership to help make that happen." A WAKE UP CALL Rating agencies have long noted their concern with the rapid swelling of non-bank servicers. In a note released in December 2014, Fitch stated it had "long-standing concerns with Ocwen's aggressive growth, heavy concentration of off-shore resources, and use of related companies" dating as far back as December 2011. Many industry experts agree, such aggressive action by regulators should serve as a wake-up call. "is settlement ensures that there will be a heightened sense of responsibility for servicing loans or portfolios being acquired," Delgado said. "Organizations have to be better equipped to provide the highest measure of service, no matter the circumstance or the condition of the book of business." With that in mind, market watchers are now paying close attention to what best practices will evolve from this latest spate of regulatory headaches. In a post-settlement piece for e New York Times, Lawrence A. Cunningham, a professor at George Washington University and former corporate lawyer, highlighted how Ocwen— and other firms in the lending and servicing arenas—can capitalize on the opportunity to change the tone in its executive offices. "Imposing such a change at the top is bold, and may succeed as long as the successors and continuing executives focus on the importance of leadership and culture," Cunningham writes. State agencies have also sprung into action on that front: In October, the Conference of State Bank Supervisors (CSBS) announced the launch of a unified Mortgage Servicing Rights Task Force populated by representatives from various state financial regulators and created with the aim of studying and developing prudential standards for non-bank servicers (the group includes representation from Lawsky's own department in the form of Executive Deputy Superintendent Dan Burnstein). While the future for non-bank servicing is being closely scrutinized, two things are abundantly clear: ey account for a huge (and growing) slice of the market, and they're not going anywhere anytime soon—at least, not without consequences. In a recent look at non-banks and the role they play in specialty servicing, the Urban Institute's Pamela Lee cautioned policymakers to tread carefully: "It does not appear that nonbank specialty servicers perform worse as a group than bank servicers; ... Regulators should consider the development of regulations that improve the safety and soundness of this channel, rather than those that would eventually close it down. Ultimately, the question regulators need to face is how to best encourage all servicers to perform optimally for consumers, investors, and lenders, as well as for shareholders." "We view the settlement as an opportunity for a fresh start for Ocwen." —New York State Superintendent of Financial Services Benjamin Lawsky

• Cover