Troubles Mount for Ocwen in Maryland and Around the Country Due to Mounting Regulatory Actions and Private Lawsuits, and Ocwen Stock Plummets

Ocwen, which has an outsized presence in Maryland and which is the largest subprime mortgage servicer in the United States, has settled allegations by New York’s financial regulator, but still faces trouble in California.  It is also in serious financial trouble: its stock closed at $7.71 on January 21, which is down from $16.01 a month ago, and down from $49.13 a year ago.

The Problem

As his press release explains, New York’s Benjamin Lawsky, the Superintendent of Financial Services, alleged that Ocwen had a “serious conflict of interests” and had engaged in a variety of servicing misconduct including

(a) robo-signing, (b) inaccurate affidavits and failure to properly validate document execution processes, (c) missing documentation, (d) wrongful foreclosure, (e) failure to properly maintain books and records, and (f) initiation of foreclosure actions without proper legal standing.

These problems were reported by an independent Monitor, who was appointed as a result of an earlier settlement between Ocwen and the New York authorities.

For example, a limited review by the Monitor of 478 New York loans that Ocwen had foreclosed upon revealed 1,358 violations of Ocwen’s legal obligations, or about three violations per foreclosed loan. These violations included:

  • failing to confirm that it had the right to foreclose before initiating foreclosure proceedings;

  • failing to ensure that its statements to the court in foreclosure proceedings were correct;

  • pursuing foreclosure even while modification applications were pending (“dual tracking”);

  • failing to maintain records confirming that it is not pursuing foreclosure of servicemembers on active duty; and failing to assign a designated customer care representative.

The conflict of interests concerned Ocwen’s financial dealings with other companies partly owned by Ocwen’s Executive Chairman, William Erby.

Ocwen’s close business relationship with related companies is particularly evident in its relationship with Altisource Portfolio, which has dozens of subsidiaries that perform fee-based services for Ocwen.  In one example, Altisource Portfolio subsidiary Hubzu, an online auction site, hosts nearly all Ocwen auctions.  In certain circumstances, Hubzu has charged more for its services to Ocwen than to other customers — charges which are then passed on to borrowers and investors.

However, the problem went beyond Erby, with the regulator finding “[c]onflicts of interest are also evident at other levels of the Ocwen organization.  For example, during its review, the Monitor discovered that ‎Ocwen’s Chief Risk Officer concurrently served as the Chief Risk Officer of Altisource Portfolio.”

The Settlement

To settle the Superintendent’s allegations, Ocwen has agreed to changes in the way it does business and direct payments of $150 million.

$50 million will go in $10,000 payments to homeowners actually foreclosed upon by Ocwen in New York and any money left over will be distributed in $1,000 payments to other residents who have foreclosure proceedings against them. The remaining $100 million will go to housing, foreclosure relief and community redevelopment. Ocwen is expressly prohibited from claiming tax deductions on these payments. In addition, Ocwen has to provide New York borrowers with their files and credit reports on request and give its reasons for denying any modification that it has denied in the past. Ocwen remains liable for any harm suffered by borrowers – so they can still sue Ocwen.

William Erby will step down from the boards of Ocwen and all of the related companies. Two independent directors will be added to the board “in consultation with the Monitor [created by the earlier settlement].” The Monitor will continue to monitor Ocwen and examine its management structure. The Monitor will even “review and approve Ocwen’s benchmark pricing and performance studies with respect to all fees or expenses charged to New York borrowers by any related party.”

The California Problem

While Ocwen has settled the New York regulator’s allegations, California’s regulator has its own issues with Ocwen. As the LA Times reports, “[a]n accusation detailing the state’s complaints was issued in October [2014] by Commissioner of Business Oversight Jan Lynn Owen. The dispute stems from a routine examination of Ocwen that began in January 2013.”

Dresslar, the department’s spokesman, said that from January 2013 to the end of October, the agency received 261 complaints against Ocwen, of which 37 included issues under the Homeowners Bill of Rights.

“They failed to comply with requests for information. They failed to comply with a subpoena for information. They violated a lawful order from the commissioner. And they failed to comply with an order from an administrative law judge,” Dresslar said. “We can’t countenance that kind of behavior.”

As a result, the department is seeking to suspend Ocwen’s California mortgage license. If the license is suspended, Ocwen would have to sell the servicing rights to all the California mortgages which it currently owns.