Thursday, December 11, 2008

Ocwen Touts ‘Solid Success’ in Loan Mod Performance

From the Housing Wire:

West Palm Beach, Fla.-based Ocwen Financial Corporation (OCN: 8.13 -1.33%) said Thursday that it is seeing “solid success” with its own loan modification program. Touting a technology-based, loan-by-loan approach to modification, Ocwen said at the six-month mark, the 60-day delinquency rate on its modified loans stands at 24.6 percent.

That’s well below industry data from the Office of the Comptroller of the Currency , which Comptroller John Dugan said earlier this week found a 53 percent recidivism rate for modified loans within six months of modification.

“The salient issue is not the efficacy of loan modification as a loss mitigation tool, but whether mods are properly designed,” said Ocwen CEO William Erbey. “Our loan approach achieves the twin objectives of keeping homeowners in their homes and maximizing the net present value of the mortgages to the investors who own the loans.”

Ocwen’s proclamation of success on the performance of its loan modifications comes just one week after the company applied to convert to a bank holding company, according to an American Banker report last week. Ocwen ditched its charter with the Office of Thrift Supervision back in 2005. While the company has not commented on its application, more than a few sources have speculated the large subprime servicer is looking to access liquidity via the U.S. Treasury in order to fund its operations and cover servicer advances.

Paul Koches, Ocwen’s general counsel, would only tell American Banker that the company was searching for more “cost-effective” routes to fund operations, in line with comments made by Erbey during a recent analysts’ conference call.

Servicers, including Ocwen, are coming under increasing financial pressure surrounding the practice of advancing principal and interest to a particular loan trust; such advances represent a strong pull on liquidity as the number of defaulting borrowers grows. Rob Dubitsky, an analyst with Credit Suisse in New York, has speculated that Ocwen’s push into loan modifications is as much a self-serving program as one designed to help borrowers; he suggested in an October report that he believed the mod push from the subprime servicer coincided with a need to recoup servicing advances.

Dubitsky also noted at the time that 70 percent of the industry’s principal-reduction modifications have been performed by Ocwen, and that principal-reduction modification have had the best rate of success of the various forms of modifications a servicer can ostensibly employ.

Ocwen began modifying loans in earnest this past April, and made the news when its spurt in mods led to several deals serviced by the company experiencing significant interest shortfalls on senior ABS securities in the month of May, angering investors. Since then, master servicers have adjusted how they account for mass modifications, effectively pushing the effect of loan mods more directly into the laps of junior bondholders; that practice has led to a recent class-action lawsuit by one investment group against Countrywide over its proposed mass loan-modification efforts. See story.

For its part, Ocwen said it believes the re-default problem lies with how some servicers are doing modifications, and not with the concept of modification. “It’s possible to do modifications right. It’s challenging, but we’re doing it — and doing it in a way that’s scalable,” said Erbey. So far this year, Ocwen said it has has achieved workouts and modifications that have kept 60,000 troubled mortgages performing, and the borrowers in their homes, the company said.

Ocwen has been the most aggressive servicer in the nation in modifying loans this year, according to Credit Suisse; the firm increased subprime mods nearly 500 percent between Q1 and Q2 of this year.

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