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New York-based investor Mangrove Partners Master Fund, one of the 10 largest shareholders in Home Loan Servicing Solutions, has delivered a letter to the HLLS Board of Directors with regards to HLSS's relationship to Ocwen Financial Corp., according to an announcement from Mangrove Partners on Monday.
Mangrove Partners originally wrote to the HLLS Board of Directors on February 2, requesting that the mortgage servicer terminate its relationship with Ocwen immediately. The Board responded in a letter dated February 5; Monday's letter delivered by Mangrove Partners was in response to that letter.
"We believe that continuing to expose HLSS to Ocwen-related risks by leaving the Ocwen relationship intact constitutes a dereliction of your duty to the Company and a grave risk to all shareholders," Mangrove Partners wrote in the letter. "Your response was inadequate. As a result, it is our intention to nominate a slate of replacement directors for election this year because time is not the Company's friend and you as the Board are showing no signs of taking concrete action to protect shareholders in this serious situation."
Mangrove Partners contended in Monday's response letter that the downgrading of Ocwen's ratings by Moody's on January 29 constituted a termination event which allows HLLS to exercise contractual rights to terminate its relationship with the troubled Atlanta-based mortgage servicer. According to the letter, a termination event is defined as "the occurrence of any one or more of the following events…(e) Seller [Ocwen] fails to maintain residential primary servicer ratings for subprime loans of at least 'Average' by Standard & Poor's Rating Services."
The letter stated that another termination event occurred on February 4 when Ocwen's ratings were downgraded again, this time by Fitch Ratings.
"We believe that there are compelling reasons why HLSS should immediately begin the process of exercising its rights to direct Ocwen to transfer the servicing rights to one or more different servicers," Monday's response letter stated. "Most importantly, servicing transfers will isolate HLSS from the risks of an ongoing relationship with Ocwen. A number of these risks were outlined in our prior letter to you."
