Mortgage-Bond Holders Say Ocwen’s Failures Trigger Default

Ocwen Financial Corp. (OCN) is under siege by mortgage-bond investors who are accusing the home-loan servicer of “imprudent and improper” practices that constitute a default. Investors owning at least 25 percent of voting rights for 119 mortgage-backed securities deals with $82 billion of original balances sent a so-called notice of non-performance to trustees for the bonds, saying that the company has failed to meet its requirements as a loan servicer while shifting the costs of regulatory-probe settlements to them, according to a statement released by Kathy Patrick of Gibbs & Bruns LLP, which represents the bondholders. The move against Ocwen, which could lead to a lawsuit or loss of contracts managing the underlying loans, adds to the woes of a company that’s been under scrutiny by U.S. and state regulators for practices including mishandling foreclosures. Hedge-fund firm BlueMountain Capital Management said Friday that “misconduct” by the servicer created a default on other securities used by an Ocwen affiliate for financing. Shares of Ocwen slid 17 percent to $6.35 on Friday before the statement, bringing their loss for the past 12 months to 87 percent. The investor group includes Pacific Investment Management Co., BlackRock Inc. and MetLife Inc., according to a person with knowledge of the matter who asked not to be identified because the group hasn’t been made public. “The investors have informed the trustees of serious concerns,” Patrick said in a telephone interview. California Settlement David Millar, a spokesman for Ocwen at Sard Verbinnen & Co., declined to immediately comment on the statement. Ocwen will pay $2.5 million to settle a dispute with California, avoiding a threatened suspension of its license, according to an e-mail Friday after the close of trading from Tom Dresslar, a spokesman for the state’s Department of Business Oversight. Ocwen last month agreed to a settlement with New York that ousted its founder and prevents it from acquiring new contracts until it makes improvements to satisfy state regulators. The investor group believes that Ocwen’s behavior, including harming bondholders in settlements with regulators, conflicts in its hiring of affiliated companies and failures to maintain adequate records, represent defaults in their deals, and the “holders intend to take further action to recover these losses and protect the Trusts’ assets and mortgages,” according to the statement. Gibbs & Bruns has previously represented groups of mortgage-bond holders that won billions of dollars of settlements from Bank of America Corp., JPMorgan Chase & Co. and Citigroup Inc. over lending and servicing practices. Tara McDonnell, a spokeswoman for New York-based BlackRock, declined to comment, as did Michael Reid, a spokesman for Newport Beach, California-based Pimco. Randy Clerihue, a spokesman for New York-based MetLife, didn’t immediately return a telephone message seeking comment. To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net To contact the editors responsible for this story: Shannon D. Harrington at sharrington6@bloomberg.net Mitchell Martin, Dan Reichl

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