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As Founder Is Pushed Out, Ocwen's Future Is Cloudy

by Brian Collins

Editor's Note: The story has been updated with additional details from Ocwen's Dec. 22 conference call.

Investor confidence in Ocwen Financial was clearly shaken Monday after New York state regulators forced the firm's founder out as part of a $150 million settlement. William Erbey's resignation, which takes effect Jan. 16 "will surely cause some of the investor base to question whether they will continue to support the company," wrote Isaac Boltansky and Kevin Barker, analysts at Compass Point Research & Trading, Inc.

The servicer's share price plummeted more than 30% to $15.04 during trading, eventually closing down 27% at $16.01, as investors wondered about the company's future without Erbey, who served as Ocwen's executive chairman. The settlement with the New York Department of Financial Services places the Atlanta-based servicing company under the purview of an independent operations monitor for two years. It also closes the door on growth in the short-term.

"Ocwen will reportedly be prevented from making acquisitions or expanding until NYDFS is satisfied" that Ocwen "has reformed it operations to protect borrowers," wrote Boltansky and Barker in a report issued Monday. In addition, Erbey will step down from his board chairman positions at four related companies: Altisource Portfolio Solutions, Altisource Residential Corporation, Altisource Asset Management Corporation and Home Loan Servicing Solutions, according to a New York Department of Financial Services press release.

Ocwen director Barry Wish will become Ocwen's chairman after Erbey steps down. The current chief executive, Ron Faris, will run the nonbank mortgage servicer. "I'm confident about Ocwen's future under the experienced leadership of the executive team," Erbey said in a written statement Monday. "I have worked with Ron for more than 20 years, and he is uniquely qualified to lead Ocwen going forward."

Ocwen faces allegations from regulators that it hasn't properly assisted distressed homeowners and ran up the costs of its services through use of affiliated companies. The settlement saddles the company with a "number of changes that in the end, will create a more compliant (dare we say complacent) company, but cripple profitability for some time," wrote Henry Coffey, Jason Weaver and Calvin Hotrum, analysts at Sterne Agee.

They wrote that the settlement could be a boon for competitors such as Nationstar Mortgage Holdings and Walter Investment Management. "We don't want to get too breathless, but the settlement more or less makes Ocwen state-run, and one wonders if regulators will be sated or if more is in store for Nationstar or Walter," the Sterne Agee report says. All three nonbank servicers have delivered tremendous growth over the past few years as banks divested hundreds of billions of dollars of mortgage servicing rights due to new capital rules.

Last January, Wells Fargo agreed to sell Ocwen $39 billion in mortgage servicing rights but Benjamin Lawsky, the New York banking superintendent, put a hold on the deal. After months of delays, Ocwen and Wells Fargo finally terminated the deal in November. As of Sept. 30, Ocwen serviced $1.96 trillion in mortgage servicing rights. In the third quarter, the giant servicer set aside $100 million in reserves for a potential settlement with the New York regulator. Ocwen reported $75.3 million loss for the third quarter, compared to net income of $60.6 million in the same quarter a year ago. The company announced in August it would restate some of its prior financial results following an auditor's review.
In a conference call, Faris stressed the Ocwen will meet the terms of the settlement while moving ahead to make the business a well-capitalized and more profitable company.

"We will cooperate fully with the operations monitor" through the two-year period and "try to achieve the highest quality operating performance across our entire [servicing] platform," Faris said during the conference call late Monday afternoon. In terms of Ocwen's servicing portfolio, "there will be limited opportunities to acquire MSRs," Faris said, until the monitor approves Ocwen's loan boarding process and its ability to service both existing portfolio and new loans.

At the same time, Ocwen will focus its servicing business on non-agency loans. Faris noted the servicing of private-label securities has been more profitable than Fannie Mae and Freddie Mac loans, while "providing best-class servicing for homeowners." He noted there is demand for agency MSRs and Ocwen will be able to book gains on those sales. "This strategy has the potential to free up over $1.7 billion in capital to invest in new businesses or reduce leverage." Faris also noted that sales will generally be small transaction as opposed to bulk sales. "We will work closely with regulators and stakeholders like the GSEs and Ginnie Mae to ensure we continue to deliver positive outcomes to borrowers and investors," he said.

Ocwen also plans to expand its mortgage lending business, which originated $1.1 billion in loans during the third quarter. "We have learned from our challenges and look forward to restoring everyone's confidence in Ocwen," said Faris, who did not take questions after delivering his statement.


Senate Passes Tax Bill That Includes Key Mortgage Deductions

by Brian Collins

The Senate approved a bill late Tuesday that would retroactively extend over 50 expiring tax provisions for one year, including one that shields distressed homeowners from paying taxes on any mortgage debt forgiven in a short sale.

The Senate approved the bill 76 to 16, which extends the provisions until Dec. 30 of this year (the one-year extension is retroactive). The House passed the bill 387 to 46 on Dec. 3.

At one point, House and Senate lawmakers were close to a deal on a two-year extension. But the White House objected because key business tax provisions were given permanent status while others affecting low- and moderate-income households would still have had to be extended each year.

"In my view, any agreement on permanent tax policies must be balanced between support for businesses and support for working families. A deal that only makes corporate policies permanent — or one sharply skewed in that direction — would have failed the test of fairness," said Sen. Ron Wyden, chairman of the Senate Finance Committee.

Under the bill, homeowners can deduct the cost of mortgage insurance premiums on their 2014 tax forms. This tax break covers private mortgage insurance premiums as well as premiums paid on Federal Housing Administration, Department of Veterans Affairs and Rural Housing Service guaranteed loans. The U.S. Mortgage Insurers welcomed the extension.

"USMI commends passage by Congress last night of a one year extension of vital homeowner tax relief. We are especially pleased that the legislation includes the tax-deductible treatment of mortgage insurance premiums for low and moderate income borrowers. We look forward to working with Congress towards permanent enactment of this important tax relief for homeowners," according to the private mortgage companies.

About 3.6 million taxpayers claimed the mortgage insurance deduction in 2009, according to analysts at Compass Point Research and Trading LLC.

The bill also ensures underwater borrowers that sold their homes in a short sale in 2014 will not be penalized.

Prior to the housing bust, troubled homeowners had to pay taxes on any mortgage debt that was canceled or forgiven by a lender. The amount of forgiven mortgage debt was treated as ordinary income and taxed accordingly.

The "Mortgage Forgiveness Debt Relief Act is crucial to foreclosure mitigation efforts such as principal forgiveness and short sales," said Isaac Boltansky, an analyst with Compass Point.

In 2007, Congress passed the Mortgage Forgiveness Debt Relief Act so that distressed borrowers would not be penalized for doing a short sale. Congress extended this tax relief in 2009 and 2012, but failed to pass a tax extender bill at the end of 2013.

Since 2008, more than 800,000 distressed homeowners have taken advantage of this tax break, according to Rep. Charles Rangel, D-N.Y., an original sponsor of the debt forgiveness bill in 2007.

Short sales have been declining over the past few years due to an improving economy, lower foreclosures and the uncertainty over the tax consequences of a short sale or deed in lieu transaction, where the homeowner simply signs over the deed to the house to the bank and vacates the property.

Fannie Mae and Freddie Mac servicers completed 27,800 short sales during the first eight months of this year, compared to 87,740 in 2013 and 125,232 in 2012.

Boltansky noted that the retroactive reauthorization for 2014 also gives Federal Housing Finance Agency Director Mel Watt a shield to resist Democratic pressure to permit principal reductions on Fannie and Freddie loans.

Watt "will have additional political cover to reject calls to embrace the principal reduction through HAMP as the tax consequences could limit borrower participation" he wrote in a Dec. 2 report.

The person who perhaps made it possible for state and federal governments to collect billions from the Bank of America will apparently be amply compensated for his actions.  The New York Times is reporting that Edward O'Donnell, a former employee at Countrywide Mortgage which was purchased by the bank in 2008, will receive a whistle-blower reward of more than $57 MILLION  for his role in an August civil settlement.

Bank of America agreed to pay $16.65 billion in penalties to settle claims from federal prosecutors and several state attorneys general.  The bank was sued as successor in interest to Countrywide, one of the largest mortgage lenders in the country at the beginning of the century, has been repeated accused, along with its founder and CEO Angelo Mozilo of writing and selling shoddy mortgages.

O'Donnell is receiving the award because of a federal civil lawsuit he filed under the False Claims Act and which the federal government joined and used as the basis for pushing Bank of America into a settlement.  His reward comes from a $350 million portion of the larger penalty amount resulting from a settlement between the bank and federal prosecutors along with the states of California, Delaware, Illinois, Kentucky, Maryland, and New York.  It was ruled that O'Donnell was entitled to a 16 percent share of that portion.  He will also collect an additional and separate $1.6 million from the Bank of America.

The Times said O'Donnell may not be the only whistleblower to profit from the settlement.  Court papers mention three other similar false-claims lawsuits against the bank. Those litigants were not named in the suit but O'Donnell had not been previously identified either. 

O'Donnell was also instrumental in the October 2013 settlement of government claims against Bank of America for the so-called "hustle" program in which Countrywide loan officers were rewarded for the number of loans they produced regardless of their quality.  Bank of America was ordered to pay $1.27 billion in that case.  O'Donnell's attorney was quoted by the Times as saying his client had not yet reached a financial agreement with the federal government regarding his role in that case.

Ex-spouses and Social Security

by Jennie L. Phipps

I told my husband last night that I was going to write about ex-spouses being able to claim Social Security benefits on their ex's work record and he got pale.

But here's some retirement planning good news. It wouldn't cost my husband any money whatsoever if his ex-wife filed for Social Security based on his benefits. No retirement benefits are changed, reduced or penalized by an ex-spouse's claim.

The Social Security Administration offers a good explanation of the process. But here are the rules in a nutshell:

  • Your marriage must have lasted at least 10 years.
  • You must be 62 or older.
  • The benefit you are entitled to based on your own work record must be less than the benefit you'd be entitled to based on your ex-spouse's record -- that's 50 percent of what your ex-spouse gets or could get.
  • You can collect on your ex-spouse's record even if he or she hasn't applied for benefits, however, you must have been divorced for at least two years.
  • If your ex-spouse is deceased, you're entitled to an amount equal to his full benefit (if it is greater than your own) and you can claim it at age 60, or age 50 if you are disabled.
  • If you are claiming on your own record and your ex-spouse dies and the benefit that you would be receiving as a survivor is higher than what you are getting on your own, you can switch.
  • If you remarry before age 60, you lose the right to claim on an ex-spouse's record -- at least until the subsequent marriage(s) end in death or divorce. If that happens, you can select the best benefit from among your ex-spouses.
  • If you remarry after age 60, or you are a disabled widow or a disabled surviving former spouse who remarries after age 50, you are eligible to receive benefits based your former or your current spouse's record, whichever gets you the most money.
  • When both claimants are high earners, it might make sense to strategize. If you wait until full retirement age -- 66 -- before claiming Social Security, you can limit your claim to your ex-spouse's record. Then you take that 50 percent amount for four years while your own Social Security account grows 32 percent (8 percent per year). At age 70, you claim that higher benefit based on your own account -- a significant increase.
  • To claim your ex's benefits, you'll need a certified copy of your divorce decree. If you can't find it, you can get it from the state where you were divorced. It helps to also have that person's Social Security number. If you don't have it, supply the names of his or her parents.


What is 2015 going to bring to our housing market?

by Selma Hepp, Ph.D., Senior Economist

If you have been following the housing market news in 2014, it is possible that you are not quite sure what is going on. The status of the housing market recovery seems indeed uncertain. What happened?

Homes sales in 2014 slowed down from the year before. Total sales of existing single-family home sales in 2014 are projected to come in about 8 percent lower than 2013. Lower sales reflect some changing dynamics in the market. In 2014, California’s housing market moved away from being largely dominated by investor activity and strong competition to a more balanced market. Dramatic home price growth along with depleted inventory reduced profit margins for many of the investors. Investors consequently exited. Nevertheless, diminished investor activity has not been replaced by activity from traditional consumers. As a result, home price growth that soared in 2013 slowed down this year. After more than 20 months of double-digit year-over-year increases in home prices, we are now looking at normalized single-digit price growth. Homes are even being sold below listing price in some markets.  Also, severely depleted inventory of homes available for sale finally improved. While still an issue in areas with high buyer demand, inventory has improved in all price segments and across most parts of the state. Furthermore, mortgage interest rates have remained steady and certainly below forecasts that were anticipated for this time of 2014. Taken together, housing fundamentals are good and buyers and sellers are adjusting their expectations.

What does that mean going forward?  In 2015, housing market is expected to continue moving along a “normal” continuum. While it is difficult to define what “normal” means after a decade of volatility, improvements in housing fundamentals along with improvements in the economy and the job market indicate that a better balance will be achieved between traditional buyers and traditional sellers. Improvements in inventory of homes available for sale will help fuel demand for homes among buyers. Also, diminished competition from investors and cash buyers, and slower price appreciation, will restore some confidence back among buyers. Sellers on the other hand recognize that the market frenzy seen in 2013 no longer exists and home price growth has stabilized.

C.A.R. predicts that sales of existing single-family homes will increase in 2015, 5.8 percent, to about 403,000 sales. Median prices are also predicted to continue rising, with forecasted change of 5.2 percent to $478,700. And lastly, interest rates on 30-year mortgages will increase at some point in 2015 and are expected to average about 4.5 percent for 2015. Increase in prices along with higher interest rates mean that housing affordability for the state will decline further. The decline of 3 percentage points will put housing affordability at 27 percent in 2015, suggesting that 27 percent of households will be able to qualify for a median priced home. One of the main constrains among potential buyers has been decreased affordability. Nonetheless, price stabilization, historically low mortgage rates and greater inventory should prop the market in 2015.

Mktsnpsht Oct2014

Sixteen Charged in Nationwide House Flipping Telemarketing Scam

by Brian Honea
house flipping fraudSixteen individuals have been charged in relation to a telemarketing scheme to sell houses to investors in most of the U.S., including Michigan, according to a joint announcement by U.S. Attorney for the Eastern District of Michigan Barbara McQuade and Special Agent in Charge of the FBI Detroit Field Office Paul Abbate.

The perpetrators of the scheme caused more than $20 million in losses to their nearly 300 victims, according to the announcement. Victims of the scheme resided in Canada as well as in 46 states, but Detroit was one of the areas most affected by the scam.

According to the indictment, the telemarketers operated from call centers in Florida and New York and made unsolicited calls to potential investors offering to sell them homes in the Detroit area. The telemarketers told their victims that the homes were bank-owned and were worth much more than their current sales price, when in reality many of the homes were purchased for as low as $500 and quickly sold to the victims for between $7,500 and $15,000.

The telemarketers then led the victims to believe that the purchased homes were being sold to hedge funds or foreign buyers for huge profits when in reality the homes were being transferred to shell corporations created by the telemarketers where there was no profit. Using this scheme, the telemarketers convinced many investors that there was a lucrative home-flipping market in Detroit, enabling them to sell thousands of homes to investors using these tactics. The telemarketers used aliases and changed the name of the company many times to avoid detection from law enforcement and disgruntled investors who realized they had been defrauded.

In addition to the millions of dollars that the telemarketers obtained through fraud, the scheme perpetuated the spreading of blight in Detroit due to the large number of homes vacated and not maintained. Wayne County, where Detroit is the county seat, just began foreclosure proceedings on a record 75,000 properties. About 62,000 of those properties are located in Detroit, and about half of those 62,000 are believed to be unoccupied.

"This nationwide telemarketing fraud not only caused millions of dollars in losses to victims of the scheme, but it also contributed to blight in Detroit neighborhoods," McQuade said. "Thousands of homes were left to fall into decay as a result of these individuals using Detroit real estate as a commodity to accomplish their fraud."

Perpetrators of the scheme were charged with conspiracy to commit mail and wire fraud, 15 counts of underlying wire fraud, and conspiracy to commit international money laundering, with each of the 17 counts carrying a potential sentence of up to 20 years in prison.

Those arrested and charged were Izhak Halbani, Antawn Reid, Scott Amster, Richard Silverstein, Michelle Pintado, John Trumble, Wayne Scott Thompson, Theodore Jacobs, Joseph Haden, Scott Lipman, and Steven Goldstein, all of Florida; Richard Pierce and Matthew Golden of Michigan; and Erez Arsoni, Gregory Swarn, and Joseph Arsenault of New York.

"The perpetrators in this case stole millions of dollars from hundreds of victims," Abbate said. "However, they did more than steal money – their greed and fraud compounded the proliferation of vacant homes left for ruin in far too many Detroit neighborhoods. The FBI is committed to rooting out and bringing to justice those who would commit crimes of this nature and act against the interests of our communities."

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