During 2016, Ocwen Financial disclosed the steps it took to overturn the
mortgage servicing prohibition placed on the company per the terms of
its 2015 consent order with the California Department of Business Oversight
(CDBO) stemming from allegations that Ocwen failed to comply with routine
disclosures required by California law.
In conversations with both Securities and Exchange Commission (SEC) officials
and its shareholders, Ocwen stated it had reserved $25 million to rid
itself of the CDBO restrictions which prevented the company from seeking
further mortgage servicing rights for California-based loans. In fact,
the company was under so much scrutiny, that it posted an internal auditor
to monitor Ocwen’s internal operations to guarantee compliance with
the order’s requirements.
Ocwen’s efforts finally paid off, as it announced on February 17th
that it had agreed to a settlement deal with the CDBO to lift the state’s
servicing prohibition on the company’s mortgage servicing rights.
However, the cost required to complete the deal dwarfed the initial $25
million Ocwen had set aside, with the final settlement adding $198 million
in loan debt forgiveness.
The excessive cost of the settlement is a result of the internal auditor’s
findings that Ocwen had committed hundreds of violations of state and
federal statutes over the course of 18 months—including numerous
breaches of the California Homeowner Bill of Rights.
Per the CDBO, Ocwen broke federal law by:
- Accepting mortgagers’ insurance premium payments after borrowers
were required to make them
- Failing to inform its customers of time-sensitive periods to accept or
reject loan modification terms
- Distributing incorrect and late notices to borrowers who were over 45 days
overdue on their payments, or periodically failing to send these notices at all
- Failing to timely communication updated data to credit reporting agencies
regarding California mortgagers when Ocwen previously had submitted inaccurate data
According to the DBO, Ocwen additionally ran afoul of the federal Servicemembers
Civil Relief Act by not promptly reducing the monthly interest rate to
the required six-percent for California active duty military personnel.
Furthermore, the DBO reported that the servicing company violated the
California Homeowner Bill of Rights by:
- Not providing customers with the requisite loss mitigation denial notice
- Misinforming borrowers in loss mitigation denial notices by incorrectly
stating they’re payments were current
- Giving borrowers faulty data on default notices
The CDBO revealed the settlement entails Ocwen paying $25 million in cash—$20
million of which will be put towards restitution for the wronged borrowers
and the remaining $5 million will be used to cover civil fines, lawyer’s
fees, and the cost of a manager to supervise the distribution of the restitution
funds. Additionally, they will be required to include $198 million in
debt forgiveness by way of loan modifications to California borrowers
over a three-year window.
California borrowers could be entitled to further compensation stemming
from allegations that Ocwen backdated correspondence sent to delinquent
borrowers. The company failed a 2016 compliance inspection conducted by
an auditor affiliated with the National Mortgage Settlement due to similar
customer letter issues. The CDBO noted that the agreement stipulates that
Ocwen must pay restitution to California borrowers impacted by this letter-dating error.
According to the CDBO, Ocwen sent time-sensitive notices to borrowers after
the date that appeared on the letter—which in some instances threatened
the borrowers’ eligibility for obtaining loan modifications. Although
Ocwen has already reimbursed 3,127 California borrowers in the amount
of $2 million, the CDBO settlement requires the company to send another
19,295 potentially impacted borrowers letters informing them that they
are entitled to restitution if their complaints are deemed valid.
Ocwen paid on average $639.59 per customer in restitution to the first
3,127 claimants as part of a previously existing remediation program.
If all of the additional 19,295 applicants are also found eligible, Ocwen
could be on the hook for additional $12 million.
The CDBO emphasized Ocwen may not reclaim its California mortgage servicing
rights until the first $25 million settlement payment is disbursed. The
department will choose a third-party manager to oversee the debt relief
and restitution terms of the agreement. This manager will also audit Ocwen’s
compliance with the consent order’s mandated action plan that requires
the company to address problems in its servicing procedures.