New York's banking regulator asked Ocwen Financial for information about an insurance agreement that it says may be designed to funnel fees to an affiliate for minimal work.
Benjamin Lawsky, the superintendent of the Department of Financial Services, is reviewing the mortgage-servicing firm's arrangement with Altisource Portfolio Solutions SA, which he described as "troubling," according to a letter dated today obtained by Bloomberg News.
Lawsky is probing possible conflicts of interest at Atlanta-based Ocwen, which has grown in recent years by acquiring the mortgage-servicing rights to distressed loans from large banks. His review is focused on force-placed insurance, which protects a lender on a home when the property owner's own insurance has lapsed.
"Altisource will generate significant revenue from Ocwen's new force-placed arrangement while apparently doing very little work," Lawsky said in the letter. Documents suggest "Ocwen hired Altisource to design Ocwen's new force-placed program with the expectation and intent that Altisource would use this opportunity to steer profits to itself."
Ocwen fell 3.7 percent to $26.67 at 1:04 p.m. in New York. Altisource Portfolio dropped about 15 percent. David Millar, an Ocwen spokesman, declined immediate comment about Lawsky's request for information.
In February, Lawsky requested information about Ocwen's relationships with vendors, saying that William Erbey, the firm's chairman, was the largest shareholder in several affiliates that provide services to the company. Erbey owns 27 percent of Altisource Portfolio shares, according to data compiled by Bloomberg.
Lawsky said in today's letter that the department has "serious concerns about the apparently conflicted role" played by Erbey and potentially other officers and directors in directing profits to Altisource Portfolio.
An investigation by Lawsky found that mortgage servicers were setting up affiliated companies to collect commissions on force-placed insurance and funneling their borrowers' business through their own agencies in violation of state insurance law. The agencies had an incentive to purchase insurance with high premiums because they earned higher commissions, according to the department.
Last year, Assurant Inc. was fined $14 million and ordered to cut insurance premiums and make refunds to homeowners after the Department of Financial Services found the company overcharged clients and won business through improper deals with banks.