Home Loan Servicing Solutions Ltd. has settled allegations of mishandling the valuation and acquisition of mortgage servicing rights.
The
George Town, Grand Cayman-based company previously purchased MSRs on billions of dollars in home loans from Ocwen Financial Corp.
HLSS publicly disclosed that it valued the MSR assets based on their fair value as determined by a third party.
But, according to an announcement Monday from the Securities and Exchange Commission, the company instead
assigned a value equal to their carrying value as long as the carrying value was within five percent of a third-party’s fair market value estimate.
It’s handling of the MSR valuations allegedly didn’t conform to
generally accepted accounting principles.
“HLSS senior management and the HLSS audit committee failed to adequately review whether the valuation methodology complied with GAAP despite internal concerns that the valuation methodology might result in material differences between the carrying value and the third-party’s fair value estimate,” the SEC’s order reportedly said.
As a result, net income during 2012, 2013 and the first-quarter 2014 was misstated.
In addition, the company claimed that from 2012 until 2014, its chairman was recused from transactions with Ocwen, where he was also chairman.
But the SEC said that it found that HLSS had no written policies or procedures on recusals for related-party transactions.
In addition, the SEC claims that the chairman
allegedly approved many transactions between HLSS and Ocwen.
William
Erbey was previously the chairman of both companies. He resigned from both boards in December 2014 as part of a settlement with the New York State Department of Financial Services.
“As a result of its lax internal controls environment, HLSS failed to properly value its primary asset and to make accurate and complete disclosures in its public filings,” Michael J. Osnato, chief of the SEC enforcement division’s complex financial instruments unit, said in the statement. “It failed to meet requirements that are fundamental to ensuring that investors receive reliable information, including in matters involving complex assets.”
Today’s announcement indicated that HLSS has agreed to pay a $1.5 million penalty to settle SEC charges. HLSS also has
agreed to cease and desist from disclosure and books and record-keeping violations.
