Investor confidence in Ocwen Financial Corp. (NYSE: OCN) was clearly shaken after New York state regulators recently forced the firm's founder out as part of a $150 million settlement.

William Erbey's (pictured) resignation, which takes effect Jan. 16 "will surely cause some of the investor base to question whether they will continue to support the company," wrote Isaac Boltansky and Kevin Barker, analysts at Compass Point Research & Trading Inc.

The servicer's share price plummeted on Dec. 22 more than 30 percent to $15.04 during trading, eventually closing down 27 percent at $16.01, as investors wondered about the company's future without Erbey, who served as Ocwen's executive chairman.

The settlement with the New York Department of Financial Services places the Atlanta-based servicing company under the purview of an independent operations monitor for two years. It also closes the door on growth in the short-term.

"Ocwen will reportedly be prevented from making acquisitions or expanding until NYDFS is satisfied" that Ocwen "has reformed it operations to protect borrowers," wrote Boltansky and Barker in a report issued Monday.

In addition, Erbey will step down from his board chairman positions at four related companies: Altisource Portfolio Solutions, Altisource Residential Corporation, Altisource Asset Management Corporation and Home Loan Servicing Solutions, according to a New York Department of Financial Services press release.

Ocwen director Barry Wish will become Ocwen's chairman after Erbey steps down. The current chief executive, Ron Faris, will run the nonbank mortgage servicer.

"I'm confident about Ocwen's future under the experienced leadership of the executive team," Erbey said in a written statement Monday. "I have worked with Ron for more than 20 years, and he is uniquely qualified to lead Ocwen going forward."

Ocwen faces allegations from regulators that it hasn't properly assisted distressed homeowners and ran up the costs of its services through use of affiliated companies.

The settlement saddles the company with a "number of changes that in the end, will create a more compliant (dare we say complacent) company, but cripple profitability for some time," wrote Henry Coffey, Jason Weaver and Calvin Hotrum, analysts at Sterne Agee.

They wrote that the settlement could be a boon for competitors such as Nationstar Mortgage Holdings and Walter Investment Management.

"We don't want to get too breathless, but the settlement more or less makes Ocwen state-run, and one wonders if regulators will be sated or if more is in store for Nationstar or Walter," the Sterne Agee report says.

All three nonbank servicers have delivered tremendous growth over the past few years as banks divested hundreds of billions of dollars of mortgage servicing rights due to new capital rules.

Last January, Wells Fargo agreed to sell Ocwen $39 billion in mortgage servicing rights but Benjamin Lawsky, the New York banking superintendent, put a hold on the deal. After months of delays, Ocwen and Wells Fargo finally terminated the deal in November.

As of Sept. 30, Ocwen serviced $1.96 trillion in mortgage servicing rights. In the third quarter, the giant servicer set aside $100 million in reserves for a potential settlement with the New York regulator.

Ocwen reported $75.3 million loss for the third quarter, compared to net income of $60.6 million in the same quarter a year ago. The company announced in August it would restate some of its prior financial results following an auditor's review.

In a conference call, Faris stressed the Ocwen will meet the terms of the settlement while moving ahead to make the business a well capitalized and more profitable company.

"We will cooperate fully with the operations monitor" through the two-year period and "try to achieve the highest quality operating performance across our entire [servicing] platform," Faris said during the conference call late Monday afternoon.

In terms of Ocwen's servicing portfolio, "there will be limit opportunities to acquire MSRs," Faris said, until the monitor approves Ocwen's loan boarding process and its ability to service both existing portfolio and new loans.

At the same time, Ocwen will focus its servicing business on non-agency loans. Faris noted the servicing of private-label securities has been more profitable than Fannie Mae and Freddie Mac loans, while "providing best-class servicing for homeowners."

He noted there is demand for agency MSRs and Ocwen will be able to book gains on those sales. "This strategy has the potential to free up over $1.7 billion in capital to invest in new businesses or reduce leverage."

Faris also noted that sales will generally be small transaction as opposed to bulk sales. "We will work closely with regulators and stakeholders like the GSEs and Ginnie Mae to ensure we continue to deliver positive outcomes to borrowers and investors," he said.

Ocwen also plans to expand its mortgage lending business, which originated $1.1 billion in loans during the third quarter.

"We have learned from our challenges and look forward to restoring everyone's confidence in Ocwen," said Faris, who did not take questions after delivering his statement.

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