Ocwen is facing similar allegations from BlueMountain Capital and hedge funds represented by Gibbs & Bruns, both of which claim that Ocwen is in default
Last Friday BlueMountain Capital Management sent a letter claiming that Ocwen’s legal troubles, which have been extensive, effectively put the mortgage servicer into default (you can check it out here if you can stomach the legalese). The timing of the letter was a bit off since Ocwen has finally settled its dispute with California, and Ocwen says that it “intends to vigorously defend itself against the allegations in the letter.”
BlueMountain owns OCN debt while it shorts the stock
It might sound strange for there to be a disagreement about whether a company is in default, which is normally associated with failing to make a payment, but it can apply to other breaches of contract as well. The core of BlueMountain’s claim is that Ocwen is in default because of its failure to “comply with applicable laws and requisite servicing obligations.” BlueMountain says that it wants a 3 percentage point increase in the note interest rate, the remedy stipulated in the indenture, but there’s more to the story.
BlueMountain is also shorting Ocwen, so if it manages to push up the interest rates on Ocwen’s debt (a development that other creditors would be quick to follow) it will also benefit from the subsequent drop in stock prices.
Ocwen calls Gibbs & Bruns ‘pro-foreclosure’
At the same time, Ocwen is defending itself from similar allegations made by the law firm Gibbs & Bruns on behalf of its clients. Last Friday it also accused Ocwen of material failures to comply with its covenants as a mortgage servicer, claiming that the company is in default. Unlike the brief letter rejecting BlueMountain’s allegations, Ocwen shot back at Gibbs & Bruns with some accusations of its own.
“Ocwen does not, will not, and indeed may not accede to the special interests of your institutional investor clients, based on their particular tranche positions, to the detriment of the Trusts as a whole,” the company wrote. “Contrary to the suggestions in your letter, all of Ocwen’s mortgage loan modifications, including principal reductions, are designed to be Net Present Value positive. As a result, Ocwen’s approach makes sound economic sense because, again, it seeks to service loans in the best interest of the Trusts as a whole.”
Ocwen says that it already had an independent review of similar allegations when certain mortgage service rights were transferred from OneWest to Ocwen and that it will fight the new allegations now. Ocwen also claims the real purpose behind the Gibbs & Bruns letter is to push back against principal reductions and to start a new round of foreclosures so that the law firm’s clients can get paid.
Correction: A previous version of this article mistakenly identified quotes from Ocwen’s response to Gibbs & Bruns as part of its response to BlueMountain Capital.