Ocwen Plans to Restate Results, Citing Material Weakness

Aug 12, 2014 10:03 am ET

(Updates with explanation of material weakness in the third paragraph, ties to firm in fourth.)

Aug. 12 (Bloomberg) -- Ocwen Financial Corp., the largest nonbank mortgage servicer, said investors shouldn’t rely on its financial statements for 2013 and the first quarter of this year as the firm’s auditor reviews accounting controls.

“The company anticipates it will determine that a material weakness existed in the relevant time periods in the adequacy of our controls,” Atlanta-based Ocwen said today in a regulatory filing.

The deficiency relates to how the company accounted for the sale of mortgage-servicing rights to Home Loan Servicing Solutions Ltd., according to the filing. Pretax income for 2013 will probably increase by $17 million and decline by the same amount in the first quarter, the firm said.

Benjamin Lawsky, New York State’s superintendent of the Department of Financial Services, is reviewing the mortgage- servicing firm’s arrangement with Altisource Portfolio Solutions SA, which he said may be designed to funnel fees to an affiliate for minimal work. The firm declined to comment on Lawsky’s review earlier this month.

Ocwen created Home Loan Servicing Solutions, which it took public in 2012, to help finance investments in servicing contracts. Billionaire William Erbey serves as chairman of both firms, as well as several other related companies.

Ocwen had dropped by about half this year through yesterday in New York trading, compared with a 4.8 percent gain for the Standard & Poor’s 500 Index. The shares declined 1.1 percent to $26.04 at 10 a.m.

The company said it doesn’t anticipate any change to second-quarter results. Mortgage-servicing rights are contracts assigning the authority to collect home-loan payments from borrowers.

--With assistance from Jody Shenn in New York.