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Erbey's Departure Ends A Heady Era at Ocwen
From the Wall Street Journal of Tue, 23 Dec 2014 00:18:15 EST

Ocwen Financial Corp. will have to move past a punishing regulatory settlement without the driving force of Executive Chairman William C. Erbey.

Many investors aren’t sticking around to find out to find out if it will succeed.

The company’s shares plunged 27% Monday on the news that Mr. Erbey resigned as part of the embattled mortgage-servicing company’s $150 million settlement with New York’s top financial regulator. In the agreement, the firm also agreed to appoint two new independent directors. An outside monitor, appointed by the regulator, will oversee and track the company’s dealings with homeowners for up to three years.

But the exit of Mr. Erbey, a low-key billionaire who built Ocwen into a stock-market darling, marks the most dramatic change for the firm.

Mr. Erbey “was the main architect of the corporate structure we see today,” wrote Kevin Barker, an analyst with Compass Point Research and Trading, in a note to clients. He added that Mr. Erbey’s resignation will likely cause some to “question whether they will continue to support the company.”

But the company won’t be in entirely new hands: Mr. Erbey will be replaced as chairman by Barry Wish, a current Ocwen director who has worked with Mr. Erbey for three decades.

Mr. Erbey, who has been chairman of Ocwen since 1996, also is resigning from positions as the chairman of the board of four related companies. Shares of those companies all declined Monday, with Altisource Portfolio Solutions SA losing more than one-third of its value.

The 65-year-old Mr. Erbey cut his teeth in the home-lending business at General Electric Capital Corp., where he was president of the firm’s mortgage insurance unit until 1983. He became chief executive at Ocwen in 1988.

Ocwen’s stock soared after the financial crisis as the company started acquiring business from big banks exiting the mortgage-servicing business.

“I am deeply proud of all that we have accomplished,” Mr. Erbey said on a conference call with investors Monday evening, adding that he is leaving “with the utmost confidence that Ocwen is in capable hands.”

Mr. Erbey’s strategy drew praise after the crisis as Ocwen was able to modify more loans than many competitors. It used data, psychology and an approach that minimized costs through using offshore call centers in places including India and Uruguay. It also incorporated units in places that lowered taxes for Ocwen. Mr. Erbey himself moved to St. Croix to lower the company’s taxes.

Orin Kramer, an investor who runs hedge fund Boston Provident LP, said he has known Mr. Erbey for more than 20 years and that “he works something like 90 hours a week because he’s completely committed to his businesses,” says Mr. Kramer. He said Mr. Erbey doesn’t golf or own a boat, and stays in modest hotels when he visits New York.

Last year, Mr. Erbey earned a total of $2.94 million and in 2012 he earned $19.6 million as executive chairman of Ocwen, according to regulatory filings.

Benjamin Lawsky , the New York State Department of Financial Services Superintendent, started to raise questions with Ocwen’s rapid growth in late 2012, demanding that a monitor be put in place to oversee the company’s mortgage operations.

The following October, Ocwen’s stock peaked. Since then, shares have fallen more than 70%, erasing billions of dollars in market value as the company came under increasing scrutiny from Mr. Lawsky and federal regulators. In December 2013, the company reached a $2.1 billion settlement with the Consumer Financial Protection Bureau and 49 states over alleged homeowner abuses. In February, Mr. Lawsky halted a deal for the company to collect payments on $39 billion of loans from Wells Fargo & Co., citing concerns about Ocwen’s growth.

In Monday’s agreement with Mr. Lawsky’s office, the company acknowledged that it didn’t properly deal with distressed homeowners, may have saddled them with excessive charges from affiliated companies and failed to maintain adequate systems for servicing hundreds of billions of dollars in mortgages.

Bose George, an analyst at Keefe, Bruyette & Woods, who has covered Ocwen and known Mr. Erbey for years, said Mr. Erbey was the creative source for the company’s growth. “But his flaw was on the operational side. It was the operational issues that derailed them,” he said.

Mr. Wish was the chairman of the board at Ocwen from 1988 to 1996, and he was the founder of the Oxford Financial Group, which was the corporate predecessor of Ocwen, according to Ocwen’s regulatory filings.

In a call with analysts on Monday afternoon, Ocwen CEO Ronald Faris said the company will withdraw from the business of servicing mortgages backed by the U.S. government. He said that Ocwen would be selling off that servicing portfolio and instead would focus just on so-called nonagency mortgages.

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