Wednesday, September 10, 2008

A startling take on the truth about loan modifications!!!

I just got off the phone with Loss Mitigation at Ocwen. Correction, make that what used to be Loss Mitigation. As of noon-ish today, Ocwen has left the Short Sale playing field.

According to my contact, (a Loss Mitigator) they announced to the department today via email, that they were done.

Ocwen decided to stop negotiating all short sales. Period.

"None at all?", sheepishly I asked.

"Not a single one. Unless it was already approved", says he.

Curiously, yesterday the deal to sell Ocwen collapsed.

Here I am working on negotiating a short sale. I'm pretty sure the borrower did a Stated Income Loan and lied through his teeth about his income. I'm also pretty sure he used someone else for the Social Security Number. (No, I didn't do his loan!). And I'm pretty sure he has a sub sub prime loan (two subs intended).

There's no loan modification in the books for this borrower.

I asked my LM guy, "So this is going to go to foreclosure, become an REO, and Ocwen will take a bigger loss down the road?"

"Yup, That sure appears to be what they are planning!"

Ocwen, who's shares tanked yesterday, is primarily a loan servicer.

As of December 31, 2006, OCN serviced 473,665 loans under 487 servicing agreements for over 40 clients. These clients include Wall Street firms with mortgage securitization platforms, such as Deutsche Bank, Lehman Brothers, Credit Suisse and Morgan Stanley, mortgage originators, such as Delta Funding, and governmental agencies, such as the United States Department of Veterans Affairs. Revenue from this segment comprised 80%, of its consolidated revenue, during the year ended December 31, 2006. (Reuters)

After I got off the phone I started thinking. This is all speculation on my part...

If Ocwen was the holder of the Note, they would have a vested financial interest in minimizing the overall losses. Accepting a short sale would minimize those potential losses. But Ocwen isn't the holder of the Note. Some Investor is.

In a Short Sale there is going to be a loss. Ocwen will negotiate for what they can, and then pass the remaining balance to the Investor. That loss will be absorbed by the investor. The key is not in the loss, but in the fee generation. In a short sale, Ocwen can charge only a small amount of fees.

On a foreclosure, Ocwen can and will charge up the fees. The Admin Fee, Processing Fee, reloading the Stapler Fee, talking to Mueller Fee. Pretty much any fee they can come up with. These are fees they just couldn't generate with a short sale.

After the Auction, when it goes on the market as an REO... Assuming it sells for the same amount it might have had it been a short sale, Ocwen stands to make much more in fees than had they negotiated a short sale.

Following me so far?

Oh yeah, and who pays for all the loss mitigator salary anyway? Ocwen!

So what do you do when the negotiations for your purchase fall through?

I can just see the BOD saying last night, "If we can't sell this pig of a company, we'll fire the Loss Mitigation Department, stop doing negotiations and rack up the fees! "

Of course, the REO probably won't sell for the amount they could have negotiated the short sale for. But who cares? Not Ocwen, They'll get their trumped up fees no matter what it sells for. It's the investor that's taking the hit - not them.

Ocwen is still in business. Are they not worried that by shooting their investors in the foot that they won't be able to attract new investors to service for?

Or since the buyout fell through, is the corporate plan to make as much as they can before closing shop?

2006 Net Income: 206 Million
2007 Net Income: 38 Million
4th Quarter Net LOSS: almost 7 Million!

Just thinking...

1 comment:

Unknown said...


What's your take on the cause of the current credit crisis. Who's to blame - govt, wall street, businesses, consumers, etc?