Joseph Smith, the federal monitor overseeing the 2012 national mortgage settlement, wrote in a recent report that mortgage servicer Ocwen Financial Corp. may have improperly influenced which mortgages were picked for a compliance review.
In the report, Smith says that in May, an Ocwen employee ‘contacted a member of the monitoring committee and alleged serious deficiencies in [Ocwen's] internal review group (IRG) process, which called into question the IRG's independence and the integrity of the IRG's operations.’
A subsequent investigation revealed that the internal IRG – which was to select loan files for review independent of management – may have been unduly influenced as to which loan files to submit for review.
‘After my team and I reviewed numerous documents and interviewed several Ocwen personnel, I concluded that I could not rely on the work of Ocwen's IRG for the first half of 2014,’ he adds. ‘Therefore, I exercised my authority under the settlement and tasked McGladrey, an independent accounting firm, to retest Ocwen's performance on a number of metrics.’
Smith and his team are also reportedly following up on an investigation conducted by the New York Superintendent of Financial Services (NYDFS) which revealed that the dates on certain correspondence from Ocwen to its consumers was incorrect, resulting in homeowners having significantly less time to respond to denials for loan modifications.
Ocwen later issued a statement claiming that the problem was due to a glitch with its automated system for generating the letters.
‘I directed Ocwen to scope, correct and remediate this letter-dating problem,’ Smith says in his report. ‘Again, I engaged McGladrey to perform additional work to confirm that Ocwen is complying with the settlement. McGladrey's work on both issues is ongoing, and I will report to the court when it has been completed.’
Ocwen, which has seen its stock plunge 60% this year as a result of various regulatory snags, last month canceled its planned purchase of $39 billion of residential mortgage servicing rights (MSRs) from Wells Fargo by mutual agreement between the two companies. In early February, the NYDFS halted the transaction indefinitely over concerns that Ocwen didn't have the capacity to properly handle the approximately 184,000 loans included in the deal.
Later that same month, Benjamin Lawsky, superintendent of the NYDFS, said both state and federal regulators should play a more active role in deciding whether non-bank servicers have the capacity to handle such deals.
In a separate but related action, Lawsky said in April that he was examining potential conflicts of interest between Ocwen and some of its vendors – specifically, why an auction services company that the firm was working with was charging customers nearly three times as much as it did non-Ocwen customers.
Just this week, Ocwen announced that it had recently purchased 1,705 delinquent Federal Housing Administration-insured loans with an unpaid principal balance of $253.1 million from Ginnie Mae. Ocwen was already the servicer on the pool of loans.
In response to Smith's most recent report, Ronald Faris, president and CEO of Ocwen, says, ‘We will continue to support the monitor's efforts to ensure we are fully compliant with all of the aspects of the national mortgage settlement. We are committed to delivering best-in-class services as we help troubled borrowers keep their homes.’
The company says it has taken corrective action in response to Smith's allegations, including implementing a set of governing principles for the IRG that were reviewed with Smith; reorganizing the IRG so that it now reports directly to the compliance committee of the board of directors instead of to internal audit; and installing new IRG management.
In response to the letter-dating problem, Ocwen claims it is creating a master corrective action plan, as well as establishing a claims process for borrowers potentially harmed by any misdated letters.
To read Smith's full report, click here.