Ocwen

This may be a little off topic, but please indulge me one. I don’t want this to become double digit posts, but I am trying to understand how the market works in general here. And there are a lot of knowledgeable folks that hang around this board.

My question is, does anyone know how to figure out how Ocwen ownership shifted yesterday? In case anyone didn’t hear, the stock lost 50%+ yesterday after:

more than 20 states issued cease-and-desist orders against the company related to alleged mismanagement of escrow accounts and the company’s poor financial standing.

In addition, the Consumer Financial Protection Bureau (CFPB) has filed a lawsuit against Ocwen for similar alleged abuses.

https://www.benzinga.com/news/17/04/9325615/new-residential-…

Anyway, volume was 65M shares yesterday, vs their average 1 or 2 million. So I assume this is a lot of big institutions selling huge amounts of shares back and forth to each other? But it would be really interesting to see which institutions, how many shares, when…basically the whole log. Is there a way to do anything like that?

Bear

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I don’t know how to answer your question exactly, but my first step would be to see who the big shareholders are.

https://finance.yahoo.com/quote/OCN/holders?p=OCN

The most recent info for individual holders is March 29, but only end-of-2016 for institutional holders.

At that time, Putnam, Vanguard, and Kingstown owned the most, together close to 22 million shares.

So since you’re talking about a volume of 65 million shares in one day, that’s amazing. The volume now, with a couple of hours left to trade, is already close to 20 million.

About a year ago, I looked at it, and it seemed very sketchy to me, not something you could buy and not worry about, something that had been tied up in the mid-2000’s housing bubble.

Well a couple things are going on here. I do have a holding in NRZ which is in a similar business as OCN. However, NRZ is much more financially sound and successfully completed their recent audit.

Ocwen Financial Corporation (OCN) is in the business of mortages, both residential and commercial. They originate mortgage loans, while also providing servicing for mortgages that their partners own. When you have a mortgage on a house, and the interest rate is 3.8%, but your actual APR is 4.1%, that .3% difference is the cost for servicing the mortgage. Servicing roles include escrow accounts for taxes, pmi, and/or insurance, as well as the documentation and payment transfer part of the business.

The Consumer Financial Protection Bureau (CFPB) sued OCN because according to the CFPB’s review, OCN broke the law. They allegedly mismanaged every step of the mortgage process, illegally foreclosed on struggling borrowers, ignored complaints, and did not file disclosures and necessary paperwork regarding errors in borrowers’ records to both the borrower and regulatory authorities. There appears to be quite a few issues with escrow accounts, where OCN was being paid by other businesses to manage the escrow accounts for their clients, yet not doing so properly. Imagine you’re a payroll clerk, and your job is to write the checks for employees and audit timecards - if you just forget to write the checks for employees every week, I don’t think you’ll have a job for very long.

After the 2008 housing crisis, OCN bought an enormous amount of the bad loans that were causing issues for banks. I wouldn’t be surprised if they foreclosed on a lot of those, and customers are getting upset about it. Because of some of those riskier investments, the company doesn’t have a great financial foundation right now to stand on - which puts its entire mortgage portfolio at risk, including the ones for borrowers that always make payments on time.

Now, the reason the stock price tanked so much was from a massive short attack. In conjunction with the short attack, some investors (both institutional and individual) sold a lot of shares, partly out of fear as the price dropped that significantly. Many of those investors also had stop-loss targets in place, which liquidated a massive number of shares when the price dropped so significantly, further exacerbating the problem.

There are some pretty popular short sellers out there, Citron Research is one that comes to mind, although there are quite a few. When a new article comes out exposing a vulnerability in a company’s stock price, whether legitimate or just perceived, people jump on the short bandwagon pretty hard. There are a couple groups of people I’ve heard of that are throwing around hundreds of millions of dollars shorting companies, covering, and then moving on to the next target. Some of that collaboration, in my opinion, is borderline illegal - they rely on some inside information to establish short positions minutes, hours, or even a couple days before the next big article comes out. By combining forces and hitting the same stock all at once, it triggers stop-losses and a lot of sales by normal investors that aren’t privy to the same information at that moment in time. How many people here would hold their highest conviction stock if it plummeted 50-70% in a single day?

Pretty good article about when George Soros shorted the British sterling:
https://priceonomics.com/the-trade-of-the-century-when-georg…

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Welgard, your note gives one very good reason to be sparing with stop loss orders.

If the shorts have good reasons, I don’t see that as unethical or illegal, whether or not they heavily publicize their shorting. The situation with BOFI, though, is much more murky. I’ve never seen BOFI mentioned by Citron. Citron strikes me as generally honest, but of course not always right. They shot down Valeant for reasons that even Bill Ackman now accepts. On the other hand, their thesis on Chemours (CC) seems to be not working out.