Tags: Ocwen | mortgage | violation | settlement

Ocwen's Backdated Letters May Violate Settlement With Watchdog

Wednesday, 22 October 2014 11:49 AM

Revelations that Ocwen Financial Corp., the largest U.S. nonbank servicer, backdated thousands of letters to struggling borrowers may violate the settlement it struck in December with the Consumer Financial Protection Bureau and 49 state attorneys general.

That agreement, reached in December 2013, was intended to resolve mortgage-servicing issues with homeowners at Atlanta-based Ocwen and companies it acquired over the years. Benjamin Lawsky, head of New York’s Department of Financial Services, said in a letter Tuesday that Ocwen backdated thousands of loan modification denial notices to borrowers in 2012 and continuing into 2014. The backdating left some borrowers with insufficient time to appeal the denials, according to the letter, “likely causing them significant harm.”

“The existence and pervasiveness of these issues raise critical questions about Ocwen’s ability to perform its core function of servicing loans,” Lawsky wrote.

Billionaire founder William C. Erbey, 65, controls Ocwen, which has tripled the number of loans it services in the past two years. The business of collecting mortgage payments is undergoing a transformation as large banks retreat from the $9.4 trillion market, selling servicing rights to nonbanks like Ocwen and Nationstar Mortgage Holdings Inc. As Ocwen rapidly expanded, Lawsky initiated several probes of the quality of its servicing practices and possible conflicts of interest. Ocwen’s share price yesterday plunged 18 percent to $21.48, its biggest decline in six years, after Lawsky’s letter was made public.

Consent Order

Backdating the letters “appears to violate” the consent order Ocwen signed last year to settle the investigation, said Alys Cohen, staff attorney with the National Consumer Law Center in Washington.

David Millar, a spokesman for Ocwen at Sard Verbinnen & Co., declined to comment about the consent order. Ocwen deeply regrets the improperly-dated correspondence that resulted from “errors” in its systems, Millar said in a statement.

“After all this time it’s outrageous that a company can’t even make sure that people get basic information on a reasonable schedule,” Cohen said. “What will it take for servicers to do their job?”

Ocwen administered 2.7 million loans in the second quarter, up from 800,000 two years earlier. In the same period, the number of employees doubled, to 11,300 from 5,400, with the majority located in service centers in India.

“Eventually there will be some sort of resolution between Ocwen and regulators that will allow the company to begin to grow again,” said Bose George, an analyst at Keefe Bruyette & Woods Inc. in New York. “It won’t be at last year’s pace, which was probably too fast.”

Unfair Practices

Ocwen agreed to the $2.1 billion consent order last year to settle allegations by regulators of unfair and deceptive practices that included imposing unauthorized fees on homeowners for default-related services and denying modifications to people who should have qualified.

The order doesn’t specifically address backdating of letters regarding mortgage modifications. It does state that Ocwen has to ensure that borrowers have “30 days from the date of the written non-approval notice” to ask Ocwen to reconsider.

Sam Gilford, a spokesman for the CFPB, declined to comment.

Ira Rheingold, executive director of the National Association of Consumer Advocates, said the consent order could let regulators obtain more penalties, and do so more quickly than when the original order came about.

“If you have a consent order you can haul them into court and say ‘judge, they violated the order you oversaw,’” Rheingold said. “They have agreed to do something.”

Backdated Letters

Under the terms of Ocwen’s settlements with both New York and the CFPB, the company submits to independent monitoring of its compliance. Those monitors would likely have to report to the regulators before any penalties were imposed, Rheingold said.

In a letter to Ocwen made public on Tuesday, Lawsky cited one example in which the company wrote to a borrower warning that he or she had only 30 days left to request an appeal of a modification denial. The letter, backdated by several weeks, meant that the deadline had already passed by the time the homeowner received the communication, according to Lawsky.

A monitor installed at Ocwen two years ago at Lawsky’s request discovered the problem in June of this year.

“In light of these serious issues and the likelihood that thousands of new, inaccurate records are created with each passing day, Ocwen has not approached this problem with the urgency it demands,” Lawsky said in the letter. “Ocwen must fix its systems without delay.”

Millar, the spokesman, said Ocwen is continuing its investigation into these matters. “We are working with and fully cooperating with DFS and the monitor to address their concerns,” he said.

Monitoring Ocwen

Lawsky first started looking at Ocwen in 2011, when the firm announced its intention to acquire Litton Loan Servicing from Goldman Sachs Group Inc. Lawsky approved the deal on the condition that Ocwen fix issues with Litton’s foreclosure practices.

In June 2012, Lawsky dispatched examiners to conduct surprise visits at Ocwen’s offices in Houston and West Palm Beach, Florida. The examiners “started seeing things immediately,” Lawsky told Bloomberg in March. “The company had not lived up to the agreement.”

Wells Deal

Ocwen signed a consent order with Lawsky in 2012, pledging to hire a monitor to oversee its business practices. By January of this year, the company struck a deal to acquire $39 billion in mortgage servicing rights from Wells Fargo & Co.

Ocwen disclosed in early February that it was putting the deal on “indefinite hold” at the request of Lawsky’s office. Later that month, Lawsky asked Ocwen to provide information about its transactions with a series of affiliated companies controlled by Erbey, the chairman, alleging possible conflicts of interest.

In April, he expanded his probe of Ocwen, saying the company was using Hubzu, an online auction site, to sell homes facing foreclosure, even though Hubzu charged Ocwen three times as much as other clients. Hubzu is a subsidiary of Altisource Portfolio Solutions SA, one of the affiliated companies identified by Lawsky in February in which Erbey was a significant shareholder.

Shares Fall

“The relationship between Ocwen, Altisource Portfolio, and Hubzu raises significant concerns regarding self-dealing,” Lawsky said in the April letter.

Ocwen spokesmen have consistently said the company is cooperating with Lawsky’s probes.

In yesterday’s letter, Lawsky said that Ocwen claimed to have uncovered the backdating problem on its own in April and fixed it the following month, a claim the firm later admitted was false.

“Given the issues with Ocwen’s systems, it may be impossible to determine the scope of Ocwen’s non-compliance,” Lawsky said.

The investigations have pummeled Ocwen’s shares. They are down about 61 percent this year, after reaching a record high of $59.97 in 2013.

The company continues to generate profits. Analysts forecast Ocwen’s third-quarter net income jumped 40 percent from a year earlier, according to the average of seven estimates in a Bloomberg survey. Ocwen reports its earnings Oct. 30.

“Erbey has created significant amounts of value, and there is a core group of investors who are very loyal to him,” said George, the analyst. “He’s one of the most creative people in the mortgage business I’ve come across.”

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Revelations that Ocwen Financial, the largest U.S. nonbank servicer, backdated thousands of letters to struggling borrowers may violate the settlement it struck in December with the Consumer Financial Protection Bureau and 49 state attorneys general.
Ocwen, mortgage, violation, settlement
Wednesday, 22 October 2014 11:49 AM
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