According to knowledgeable sources who spoke to the Wall Street Journal, the executive chairman of Ocwen Financial Corp., Willian Erbey, has agreed to resign as part of a settlement with New York’s financial regulator. Analysts note that this final twist in the two-year-long legal struggle over the mortgage-servicing firm’s practices is surprising, but not shocking.
William C. Erbey, the billionaire who over 20 years developed Ocwen into the largest nonbank firm handling mortgage payments and administering foreclosures, has apparently agreed to resign in January as part of a proposed settlement/consent order with the New York Department of Financial Services.
Details on the Ocwen settlement
The settlement also requires Ocwen to pay $150 million to New York housing programs and aid to foreclosed homeowners, according to the WSJ sources, as well as appoint two new outside directors who must be approved by the state.
New York will also appoint a new monitor to review all of the company’s operations to be sure they are changed to protect borrowers.
The agreement may be signed by Ocwen as soon as Monday, the sources say, and the company will admit that it did not deal with distressed homeowners fairly, may have saddled them with excessive charges from affiliated companies and did not maintain adequate systems for servicing hundreds of billions of dollars in mortgages.
The exceptional penalties dished out in this case may set a new precedent for state regulatory involvement in the operations of financial companies. Both federal and state regulators have hit financial institutions with tens of billions of dollars in fines over the last few years, but Ocwen is one of a very few who have had a top exec forced out to settle serious mismanagement and misconduct charges as well as and being forced to consult with authorities in appointing board members.
Firm will be regulated more tightly
Ocwen will also be held on a regulatory right rein for the time being, the sources noted. The firm will be prevented from making acquisitions or expanding until it proves to regulators it has reformed and will now work to protect the rights of New York borrowers.
Atlanta-based Ocwen will now have to register in New York as a state-licensed mortgage servicer, which gives NY chief regulator Benjamin Lawsky broad powers to monitor and punish the firm for alleged consumer abuses.
“You’re basically taking away from shareholders the ability to run their company,” points out Ira Lee Sorkin, a former senior official at the Securities and Exchange Commission and currently a private attorney specializing in regulatory actions (not involved in the Ocwen case). “You’re telling the company in effect that the regulator is now running the company.”