Home Loan Servicing's Erbey Says No to Taxes After Saying Yes to TARP

Updated to clarify Ocwen's participation in the TARP program. An earlier version of this article stated Ocwen had yet to "pay back" TARP funds, but the type of funds the company received were incentive payments related to mortgage modifications that do not require repayment.

NEW YORK (TheStreet -- William Erbey had no problem taking taxpayer money when it came to TARP funds for Ocwen Financial(OCN) , but he's going out of his way to avoid paying taxes with a new venture, Home Loan Servicing Solutions Ltd., which is looking to go public next week.

Erbey remains the executive chairman of Ocwen, which received $123 million in TARP funds in form of incentive payments related mortgage modifications. Home Loan Servicing, which Erbey has since founded, is looking to raise $200 million in its initial public offering, proposing to sell 13.3 million shares at $14-$16 each, and it plans to use the proceeds to do a little bailing out of its own by purchasing Ocwen's mortgage servicing business.

The problem for taxpayers is that Home Loan Servicing is based in the Cayman Islands in a rather transparent move to minimize the company's tax liabilities.

Erbey served as CEO of Ocwen from January 1988 through October 2010 so it seems more than a bit disingenuous for him to set up a new entity that will look to skip paying taxes after taking TARP money while at Ocwen. On top of that, he wants the public to fund this new venture through the IPO.

The S-1 filing also raises some interesting questions about prospects for the company's business.

Home Loan Servicing is presenting itself to prospective shareholders by suggesting it will pay out 90% of its income in dividends. However, in the very first paragraph of the risk factors section of its filing, the company states, "Our business model is untested and we may not be able to execute our business strategy as planned, which may negatively impact our financial performance and our ability to pay dividends in the future."

Untested? How challenging is it to take a mortgage payment and apply it to a mortgage.

Home Loan Servicing won't just be taking on Ocwen's mortgage servicing business; it also gets Litton Loan Servicing and Saxon Mortgage. Ocwen bought Litton from Goldman Sachs(GS) for $264 million in June 2011.