WASHINGTON – New York’s top financial regulator said Monday he will investigate whether the nation’s largest overseer of subprime mortgages, Ocwen Financial Corp., overcharged struggling homeowners on insurance.
In a letter Monday, New York Financial Superintendent Benjamin Lawsky said Ocwen created complex business arrangements apparently to funnel as much as $65 million to Altisource Portfolio Solutions S.A., a publicly traded company led by former Ocwen executives and partially owned by Ocwen’s executive chairman, William Erbey.
Altisource’s total income last year was $130 million, according to its financial filings.
As the chairman of both Ocwen and Altisource, Erbey said in Securities and Exchange Commission filings that he recuses himself from any transactions between the companies. But Erbey oversaw the business deal New York is scrutinizing, Lawsky wrote, which “appears to be a gross violation of this supposed recusal policy.”
The stock market’s response to those allegations was dramatic. Altisource, which began the day with a total stock market value of $2.3 billion, began falling within minutes, ending the day down nearly 15 percent. Altisource did not respond to requests for comment. Ocwen issued a single-sentence statement declaring that it “will continue to cooperate” with New York regulators.
At the root of New York’s allegations is a product called force-placed insurance, which servicers like Ocwen force struggling mortgage borrowers to buy if they don’t maintain voluntary homeowners’ insurance. If mortgage borrowers don’t pay up for the newly purchased insurance, Ocwen forecloses on their homes. Lawsky said the extra expense of some policies “can push already struggling families over the foreclosure cliff.”
Regulators, including New York’s Department of Financial Services and the Federal Housing Finance Agency, have sought to stop big banks and other mortgage servicing companies from profiting by saddling homeowners with allegedly overpriced force-placed insurance. But some mortgage servicers appear to be skirting those rules by selling off nearly nonexistent insurance agencies, the AP reported in a story last week.
That story described how Ocwen sold Beltline Road Insurance Agency Inc. as part of an $86 million deal last year with Altisource, where Erbey is chairman and its largest shareholder. The deal occurred in the same month that the Federal Housing Finance Agency formally proposed banning direct insurance commissions from subsidiaries.
Ocwen did not respond Monday to phone calls and emails from the AP.