WASHINGTON — New York’s top financial regulator said Monday that he will investigate whether the nation’s largest overseer of subprime mortgages, Ocwen Financial Corp., overcharged struggling homeowners for insurance.
Financial Superintendent Benjamin Lawsky said Ocwen apparently created complex business arrangements to funnel as much as $65 million to Altisource Portfolio Solutions SA, a publicly traded company led by former Ocwen executives and partially owned by Ocwen’s executive chairman, William Erbey.
Altisource’s total income last year was $130 million, according to its financial filings.
As chairman of both Ocwen and Altisource, Erbey recuses himself from any transactions between the companies, he said in Securities and Exchange Commission filings. But Erbey oversaw the business deal New York is scrutinizing, Lawsky wrote, which ‘‘appears to be a gross violation of this supposed recusal policy.’’
The stock market’s response was dramatic. Altisource, which began the day with a market value of $2.3 billion, began falling within minutes, ending the day down nearly 15 percent. Altisource did not respond to requests for comment. Ocwen issued a single-sentence statement saying that it ‘‘will continue to cooperate’’ with regulators.
At the root of New York’s allegations is a product called force-placed insurance, which servicers like Ocwen require mortgage borrowers to buy if they don’t maintain voluntary homeowners’ insurance.
If borrowers don’t pay up for the newly purchased insurance, Ocwen forecloses on their homes. Lawsky said the extra expense of some policies ‘‘can push already struggling families over the foreclosure cliff.’’
New York’s allegations focus on force-placed insurance, which homeowners are required to buy if they don’t have other insurance.
Several regulators have sought to stop big banks and other mortgage servicing companies from profiting by saddling homeowners with allegedly overpriced force-placed insurance. But some servicers appear to be skirting the rules by selling off nearly nonexistent insurance agencies, the Associated Press has reported.
Its story last week described how Ocwen had sold Beltline Road Insurance Agency Inc. as part of an $86 million deal last year with Altisource, where Erbey is the chairman and its largest shareholder. The deal occurred the same month the Federal Housing Finance Agency proposed banning direct insurance commissions from subsidiaries.
Last week, Ocwen noted it had owned Beltline for only a short period after acquiring it along with the assets of a smaller mortgage servicer.
Ocwen said it no longer collects commissions from Beltline and sold the agency to Altisource solely because the agency didn’t fit in with Ocwen’s business model.
Lawsky, however, alleges Ocwen used another insurance agency, Southwest Business Corp., as an intermediary for payments to Altisource.
That will allow Altisource to ‘‘generate significant revenue from Ocwen’s new force-placed arrangement while apparently doing very little work,’’ Lawsky wrote, adding that Altisource’s intent was to ‘‘use this opportunity to steer profits to itself.’’