Ocwen

In Defense of Ocwen Servicing – July 2016 Update

INTRODUCTION

In Defense of Ocwen Servicing, published in the spring of 2015, argued that, “The servicer’s job, is to service (mortgage) loans in order to maximize the cashflow to the entire deal—and not to pay down senior classes in the fastest manner possible to the detriment of both subordinate bondholders and homeowners.” We reviewed the servicing practices at Ocwen Financial Corporation (“Ocwen”), finding support for its aggressive loan modification practices.

In this update, we compare Ocwen performance to Select Portfolio Servicing, Inc. (“SPS”), a highly regarded mortgage servicer. We chose SPS because they are viewed favorably by the mortgage investment community, and hold above average servicer ratings from the rating agencies. Currently, Ocwen is rated below average at Standard & Poor’s. These ratings matter to investors not only as a signal of overall servicing quality, but also because servicing could be transferred away from Ocwen, if it does not maintain a minimum average servicer rating by 2017. LL Funds owns over $1.8 Billion current face of bonds where the underlying mortgage loans are serviced by Ocwen. Because the investment performance of our opportunistic funds relies critically on how the underlying mortgage loans are serviced, we want Ocwen to continue to service these loans, and are sharing our research to raise awareness of the benefits of Ocwen servicing. While LL Funds does not own Ocwen equity in any of its funds, partners and employees of LL Funds do own the stock in their personal accounts.

Our research convinced us early on that Ocwen was the best servicer for troubled borrowers, because Ocwen is willing to modify borrowers—multiple times, if necessary—both by lowering interest rates and/or forgiving principal. We have enough data now to measure performance differences across servicers. When we look at a pool of borrowers that went seriously delinquent between 2008 and 2014, and track their performance through May 2016, we find that loans serviced by Ocwen resulted in 6% lower losses—liquidation and modification combined—compared to SPS. The reason for this difference is SPS liquidated 71% of these delinquent loans, while Ocwen liquidated 57%, choosing to modify and re-modify more often. Of this pool of initially delinquent borrowers, 18% of SPS serviced loans are performing as of May 2016, compared to 28% for Ocwen. This 10% difference is significant for both investors and for homeowners, who have been able to stay in their homes.

While it is clear from the data that Ocwen’s servicing practices have been good for investors overall—and also for homeowners—there are additional criteria used to arrive at servicer ratings. Because LL Funds is not in a position to evaluate these other criteria, we conclude this update with a brief summary of the Duff and Phelps report commissioned by Wells Fargo, acting as Master Servicer to some Ocwen serviced trusts, to investigate allegations made by investors and regulators. The report investigated the most important allegations against Ocwen and has found no evidence of malfeasance.

Full White Paper below…

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4closureFraud.org

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In Defense of Ocwen Servicing – July 2016 Update

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