Ocwen Financial and Altisource Portfolio Solutions shares rallied in premarket trading this morning after tanking during regular trading on Tuesday. Shares of Ocwen climbed as much as 6%, while Altisource shares rose as much as 4%, although neither increase was nearly enough to erase Tuesday’s loss.

Uncertainty about Ocwen, Altisource

The problem was an article in the Los Angeles Times that indicated the State of California might suspend Ocwen’s mortgage license. As a result of that article, Sterne Agee analysts removed their price targets for Ocwen and Altisource, although they think concerns about Home Loan Servicing Solutions are overblown.

Home Loan Servicing shares rose by as much as 3% in premarket trading this morning after taking a nosedive on Tuesday along with Ocwen, Altisource and other related companies.

OCwen

Ocwen cooperating or not?

Ocwen said on Tuesday that it is cooperating with California’s Dept. of Business Oversight (DBO). However, in a report dated Jan. 14, analysts Henry Coffey, Jr., Jason Weaver, and Calvin Hotrum said DBO officials told them and the media that the company is, in fact, not cooperating. Whatever the case may be, Ocwen will have an administrative and formal hearing in July in order to determine whether it should be stripped of its license to service mortgages.

The DBO filed a complaint in October, accusing the company of not fully complying with some information requests about foreclosures originally filed in October 2013. The agency wanted to make sure that Ocwen’s practices comply with the Home Owners Bill of Rights, which went into effect Jan. 1, 2013.

Ocwen has had a host of trouble over the last couple of years. In December, the company’s founder resigned. The firm has also faced backdating allegations in New York and an SEC subpoena related to its business ties.

Altisource schedules conference call

Altisource management scheduled a conference call for Friday at 11 a.m. Eastern to discuss the complaint against Ocwen and any potential impact it might have on their company. The Sterne Agee team said they’re waiting to hear what management says on that conference call before they decide what to think about Altisource.

Nonetheless, they apparently think it could be bad enough to suspend the company’s price target along with Ocwen’s.

Impact on Home Loan Servicing overblown

Of course whenever there is bad news for Ocwen Financial, it typically means bad things for Home Loan Servicing Solutions as well. This is especially true for issues that might cause the fair value of the company’s mortgage servicing rights to be adjusted.

However, the Sterne Agee team points out that the “basic cash flows” from them wouldn’t be “wholly impaired.” Currently the only debt held against those assets is Home Loan Servicing’s debt. Also the firms structured the original agreement as a debt security or owned interest because the rating agencies don’t recognize Home Loan Servicing as a named servicer. In light of the news about Ocwen, the analysts suggest that Home Loan could apply for that status.

If Ocwen’s servicing license does end up being suspended, Home Loan would have the right to either reassign the servicing of Ocwen’s mortgages or require that they be sold.