Mortgage servicer Ocwen Financial Corp. swung to a loss in the third quarter, after it set aside $100 million as it seeks to settle the latest in a series of charges of weak internal controls by New York’s financial regulator.
Ocwen recorded a loss of $75.3 million, or 58 cents a share, compared with net income of $60.6 million, or 39 cents a share, in the year-earlier quarter.
Revenue declined 3%, to $513.7 million.
The company said it is engaged in settlement talks with the New York Department of Financial Services over its practices in handling distressed mortgage borrowers, a sign the company is moving closer to resolving regulatory issues that have crimped its growth.
The stock, which has fallen 58% this year, climbed 11% on Thursday, rising $2.35, to $23.16, in 4 p.m. trading.
“The fact that they’re negotiating with the regulator is a positive for the market,” said Bose George, an analyst with Keefe, Bruyette & Woods. “It could mean that they’re putting this behind them.”
He noted, though, that the company said the $100 million was a preliminary estimate, and it covered only resolution of charges from New York state. It doesn’t include the possibility of additional penalties from federal or other state regulators over Ocwen’s practices.
An Ocwen spokeswoman declined to comment. In a statement, Ocwen Executive Chairman William Erbey said, “I want to emphasize that Ocwen takes great efforts to keep borrowers in their homes and to avoid foreclosures.”
The third-quarter charge follows what have been a string of challenges by Benjamin Lawsky , New York’s superintendent of financial services, to Ocwen’s handling of distressed mortgage borrowers and its ability to expand with adequate management systems in place.
Mr. Lawsky has questioned Ocwen’s dealings with affiliated companies. Last week, he said in a letter to the company that a monitor who had been placed inside Ocwen under the terms of a previous settlement had found the firm had sent backdated letters to borrowers that might have had the effect of preventing some from obtaining loan modifications or taking steps to stop foreclosures. Mr. Lawsky said possibly hundreds of thousands of distressed borrowers may have received the backdated letters.
A person with knowledge of the settlement talks between Ocwen and Mr. Lawsky’s office said they were in an early stage, but that in addition to a substantial penalty payment they could include an extension and expansion of the role of a monitor.
One of the most significant steps Mr. Lawsky took this year was to halt Ocwen’s proposed acquisition of the rights to service $39 billion in mortgages from Wells Fargo & Co.
That transaction remains on hold and even a new settlement with Ocwen might not permit the firm to conclude the Wells Fargo deal or make other acquisitions, the person said.
In addition, under any eventual settlement, Ocwen may decide to replace some of its management. “If that’s what’s needed for resolution of this, I’m OK with it, if it would mean this is finally behind them,” said Mr. George.
Ocwen also said Thursday that it had hired more than 1,000 new employees over the past two years for its compliance, risk and audit departments and that its spending in those areas had risen to $18 million in the third quarter from $1 million two years earlier.
—Michael Calia contributed to this article.