“But ‘Puter, why should we care about consumer mortgage servicing companies? They’re the rat bastards Sen. Pocahontas Warren wants to shut down for being meanies who make us repay our government guaranteed home mortgages! And what the hell is an Ocwen, anyway?” you cry.
First, you should care about Ocwen, boys and girls. You should care very much. Ocwen’s the big, fat, 12 foot tall, 1,400 pound home mortgage servicing canary in the consumer lending coal mine. And this big, fat canary’s being asphyxiated by government regulations’ toxic stank.
Second, “Ocwen” is simply “New Co.” spelled backwards. “New Co.” is legal slang for a new company (see how tricky lawyers are?) formed for a specific purpose, frequently to insulate a parent corporation from liability associated with the assets to be held by the New Co. Some joker at Ocwen probably thought the name inversion was a cute idea, so we now have Ocwen.
New York’s execrable regulators, in this case New York’s Superintendent of Financial Services Benjamin Lawsky, jawboned Ocwen into a $150 million settlement over 283 misdated letters.* You read that right. New York beat up and forced a publicly traded company to shell out $150 million to the state for getting some dates wrong.
Lawsky claims the improperly dated letters prevented these homeowners from receiving mortgage modifications to which they would otherwise be entitled. “Why would anyone be entitled to a mortgage modification if they’d defaulted on their mortgage in the first place?” you sensibly ask. Well, because of overweening federal and state regulations dictating in excruciating detail the actions a lender must take before it can foreclose on a homeowner in default.
And there’s the problem. New York didn’t come forward with people actually harmed by Ocwen’s error (or purposeful act, according to Mr. Lawsky’s white-spatted thugs). New York simply claimed Ocwen’s error ran afoul of regulations, leaving Ocwen to choose between fighting its regulators for years at a legal and reputational cost of millions of dollars or settling quickly and perhaps saving its skin. Ocwen chose to settle.
What’s the fallout been like for Ocwen? Well, Ocwen’s longtime CEO William C. Erbey “agreed to step down,” which is corporate speak for “forced out like the Klan at an NAACP meeting.” More tellingly, Ocwen’s new CEO announced last week the company “will withdraw from the business of servicing mortgages backed by the U.S. government.” No more VA or FHA guaranteed loans for Ocwen. This also means one less servicer for government guaranteed mortgages.
Ocwen looked at the lay of the land and made the business decision that cutting its regulatory exposure and forgoing significant revenue was a better choice than living with the ever-present regulatory Sword of Damocles arbitrarily (whimsically, ‘Puter’d say) threatening its existence.
So we’re back to ‘Puter’s original point: government regulators harm America’s middle class.
New York’s thuggish know-it-alls (aided and abetted by their Sen. Pocahontas Warren approved CFPB big brothers) sent a clear signal to all servicers of consumer mortgage debt. If mortgage servicers run afoul of even the most esoteric regulation in the slightest manner, New York will punish you out of all proportion to your alleged crime.
Ocwen is, ‘Puter’s certain, one of many financial industry companies limiting risk to shareholders by exiting heavily regulated markets altogether. When service providers (consumer mortgage servicers here) exit markets, prices rise. If it costs banks more to service your mortgage over time (whether in house or through a third party provider like Ocwen), those costs get passed on to consumers in the form of higher interest rates, increased fees and charges or both.
In the aftermath of the Ginormous Financial Meltdown of 2008, regulators took “something must be done, and we’re just the idiots to do it” to its logical extreme. In the name of making the lending world safer for average Americans, regulators have decreased the availability of credit. Lenders view (rightly) increased regulations and heightened scrutiny as both an increased cost and an increased risk, so lenders shut off the tap to all but the best credit risks with generous down payments until the dust settled. The mortgage pipeline still hasn’t returned to normal.
New York’s treatment of Ocwen will do nothing but compound lenders’ and servicers’ rational fears of regulatory bullying and giant potential liabilities. Credit for middle class Americans will shrivel further and you can thank shortsighted, politically motivated government regulators and their Democrat enablers for it.
Reap the bitter fruit you’ve sown, America.
* Nota bene: Ocwen has more than 2.8 million loans in its servicing portfolio. According to ‘Puter’s Piss Poor MathTM, the loans at issue equal a whopping 0.01% of its total loans under management. Clearly, $150 million (about $500,000.00 per loan) is a fair penalty to levy for a date error.