The founder of Ocwen Financial is calling for the liquidation of Front Yard Residential Corporation, a buy-renovate-lease business in which Erbey is an investor.
Front Yard was established as an independent public company following its 2012 spinoff from Altisource Portfolio Solutions.
However, since that time the company has failed to perform satisfactorily, Erbey told Front Yard Residential Chair Rochelle Dobbs in a letter emailed to MPA.
“I have been an investor in Front Yard Residential since its inception,” Erbey wrote. “And as much as I would like to see the Company continue, the time has come, in the best interests of the shareholders, to liquidate the Company.
Erbey said that in May 2018, Front Yard CFO Robin Lowe assured investors that the company’s net asset value (NAV) was “solidly in the $18 to $19 range per share.
“Mr. Lowe assured he was ‘absolutely convinced’ that the NAV was in that range and later alluded to an independent valuation company validating the same range,” Erbey said. “The Company has never reversed its guidance of two years nor subsequently disclosed anything that would call it into question. To the contrary, given the continued market increase in overall housing values since that time, it would be difficult to support a NAV of less than $20-21/share assuming the Company has professionally executed over this time period.”
Erbey also said that Front Yard’s assertion that liquidating the portfolio would cost $6.50 per share “begs credulity.”
“That cost equates to 14% of the total enterprise values at $20/share NAV. Upwards of $383 million,” he wrote. “In my limited experience in the industry, this is way over market – more than double what a well-run firm should spend to sell homes.”
Erbey said the net liquidation value of the company should be $16.50 per share — $20 per share minus $3.50 per share.
“I call upon the board to exercise its fiduciary duties and liquidate the Company,” he wrote.
In 2017, New York state regulators forced Erbey’s resignation from Ocwen over allegations that the servicer misstated its income four quarters in a row in 2013 and 2014. Shortly before his ouster from Ocwen, an investigation found that Erbey was chairing the servicer while simultaneously chairing the boards of four other companies. The probe led to a $150 million fine for Ocwen and Erbey’s ejection from all the boards he served on.