On March 13, Ocwen, one of the major loan servicing companies, announced that it will no longer negotiate short sales. This decision includes all pre-existing short sale contracts in which Ocwen has not finalized settlement agreements between its borrowers and potential short sale buyers of the distressed properties.
As of December 31, 2006, OCN serviced 473,665 loans under 487 servicing agreements for over 40 clients. These clients include Wall StreetWall-Street-Layoffs firms with mortgage securitization platforms, such as Deutsche BankBear-Stearns-Troubles, Lehman Brothers, Credit Suisse and Morgan Stanley, mortgage originators, such as Delta Funding, and governmental agencies, such as the United States Department of Veterans Affairs. Revenue from this segment comprised 80%, of its consolidated revenue, during the year ended December 31, 2006. (Reuters).
Ocwen's loss mitigation representative stated that Ocwen will focus its efforts on completing workouts for their borrowers, including loan modification and forebearance plans. This was already an active option prior to the cessation of short sales. Ocwen is not the note holder for its loans, only the servicing company providing all support services (billing, collections, etc) for the note holders and borrowers. This decision appears to an effort to increase Ocwen's profitability, by increasing the fees it collects by servicing loans and adding foreclosure service fees versus incurring costs (loss mitigation personnel and overhead) to negotiate and complete short sales. In short, there was no profit in negotiating short sales. Ocwen saw its 2007 income drop to $38 million from $206 million in 2006 and saw a fourth quarter loss of $7 million. It appears they believe they can make more money racking-up fees it charges its investors and REO property buyers for administration and similar overhead fees it can levy on REOs.