Ocwen Financial’s $360 million acquisition of PHH Corp. is set to close within the next two weeks after the companies received approvals from all relevant regulatory agencies and governmental entities, the companies announced Friday morning.
The deal was initially announced in February. At the time, the companies said that the deal was expected to close on the “latter half” of the year, but the companies now expect the deal to close in the next 10 days.
But the companies didn’t skate through the approval process total unscathed. Finalizing the deal comes with some conditions from the New York Department of Financial Services, which has long been a thorn in Ocwen’s side.
The NYDFS put Ocwen out of the mortgage servicing rights acquisition business in 2014 as part of a massive enforcement action that saw Ocwen Founder William Erbey forced out of his company.
Last year, Ocwen was on the verge of being able to acquire mortgage servicing rights again, after the nonbank reached a new agreement with the NYDFS, but in came the Consumer Financial Protection Bureau and more than 30 states, which took action against Ocwen over servicing issues.
Throughout the last year, Ocwen worked to settle those various state actions. Ocwen announced earlier this year that it reached a settlement with the Massachusetts Office of Consumer Affairs & Business Regulation’s Division of Banks, the last of the state regulators that took action against the bank.
Many of the state settlements contained provisions that require Ocwen to shift away from its proprietary RealServicing platform, which caused many servicing and escrow issues for borrowers.
Ocwen is accomplishing this by moving to Black Knight’s LoanSphere MSP servicing system.
At the time the PHH deal was announced, Ocwen said that acquiring PHH will help it speed up the transition to Black Knight’s servicing system, a move that appears to be crucial to the NYDFS approving the PHH deal.
According to Ocwen, the NYDFS had several conditions that must be met in order to earn its approval of the deal.
Most important of all is that Ocwen will be allowed to acquire new MSRs following the completion of the PHH deal, as long as any newly acquired MSRs are boarded onto the Black Knight system.
So, Ocwen can begin acquiring new MSRs but they must use the Black Knight system to service those loans. As such, the NYDFS is prohibiting Ocwen from boarding any new loans onto its RealServicing system.
Additionally, Ocwen may not grow its servicing portfolio of New York loans by more than 2% per year until the NYDFS determines that all loans serviced on the RealServicing system have been moved to the Black Knight system and that Ocwen has developed a “satisfactory infrastructure to onboard sizeable portfolios of MSRs.”
Ocwen must also provide the NYDFS with periodic reports and other information about onboarding new loans onto the Black Knight system.
The agreement with the NYDFS also stipulates that Ocwen end the use of its RealServicing system for any New York loans by April 30, 2020.
The NYDFS will also have oversight into the management of both PHH and Ocwen.
Specifically, with “limited exceptions,” Ocwen is not allowed to appoint anyone to serve on PHH’s board or in a senior management position at PHH without written approval from the NYDFS, for three years.
Additionally, the NYDFS has the following stipulations for Ocwen’s management:
- Ocwen must ensure that PHH has competent executive management in place and sufficient staff and resources with appropriate skills and expertise
- PHH may not share any common officers or employees or any internal audit, vendor oversight or risk management functions with Altisource Portfolio Solutions, S.A., Front Yard Residential Corporation and Altisource Asset Management Corporation, any of their respective officers or directors or any of their respective subsidiaries or other entities under their control
- The Ocwen board of directors must conduct an evaluation of each of Ocwen’s senior officers within one year to determine if they possess the ability, experience and other qualifications required to perform their duties. Ocwen must take appropriate action, acceptable to the NY DFS, if any of them do not possess such qualifications
- Ocwen must ensure an appropriately robust risk management function, compliance management program and internal audit structure for the transfer of loans onto the MSP servicing system
With those restrictions in place, the companies expect to close the acquisition in 10 days or less.
