Mortgage servicer Ocwen Financial Corp. reports that it has entered into an agreement with the New York State Department of Financial Services (NYDFS) that paves the way for the firm to start buying and trading mortgage servicing rights (MSRs) in New York again.
The agreement also lifts the requirement for an independent monitor to report on Ocwen’s progress in complying with enforcement actions brought by the NYDFS against the servicer starting in 2014.
“Ocwen continues to work cooperatively with the NYDFS and believes that its entry into the 2017 consent order, which provides for the termination of the operations monitorship, is in the best interest of its shareholders, customers, servicing clients, employees and other stakeholders,” the company says in a statement released Monday.
The company says the agreement provides a path toward lifting “the MSR acquisition restrictions following an on-site servicing examination to be conducted by the NYDFS.”
Ocwen’s troubles with the NYDFS date back to early 2014, when its planned acquisition of $39 billion of residential MSRs from Wells Fargo was halted by the NYDFS 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 financial services for New York, 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.
“I think it is appropriate for regulators – where warranted – to halt the explosive growth in the non-bank mortgage servicing industry before more homeowners get hurt,” Lawsky said in prepared remarks for the New York Bankers Association Meeting and Economic Forum.
Lawsky said in April 2014 that he was examining potential conflicts of interest between Ocwen and some of its vendors, including Altisource Portfolio Solutions. At the time, William C. Erbey served as chairman of the board of Ocwen, Altisource Residential, Altisource Asset Management, Altisource Portfolio Solutions and Home Loan Servicing Solutions, which, according to regulators, may have been a conflict of interest. The subsequent investigation ultimately led to Erbey’s resignation and significant restructuring of company leadership.
In December 2014, the NYDFS fined Ocwen $100 million for violating numerous mortgage servicing rules designed to protect consumers. The $100 million was to be used by the state of New York for housing, foreclosure relief and community redevelopment programs. In addition, Ocwen was ordered to pay another $50 million directly to borrowers who were impacted by the violations, including borrowers who were wrongly foreclosed upon due to the firm’s alleged sloppy handling of their mortgages.
The enforcement action ultimately resulted in the company’s founder, Erbey, to step down as executive chairman as of January 2015.
The alleged violations, which occurred between 2009 and 2014, also included the erroneous backdating of letters informing borrowers that they had been denied loan modifications, thus preventing them from being able to appeal.
As part of its settlement, Ocwen agreed to provide additional borrower assistance, such as providing, upon request by a New York borrower, a complete loan file at no cost.
It also agreed to having the monitor put in place. Originally, the monitor was to be in place for a minimum of two years.
As per the settlement, Ocwen was allowed to trade MSRs in New York, but only as long as the deals were reviewed and approved by the NYDFS.
Last year, the Securities and Exchange Commission fined Ocwen $2 million, alleging that the firm used a “flawed, undisclosed methodology” to value mortgage assets and that its internal controls “failed to prevent conflicts of interest” involving its former chairman.
Last month, Altisource revealed in a 10-K filing that the Consumer Financial Protection Bureau (CFPB) is currently looking into the relationship between Altisource and Ocwen.
In the filing, the company notes that it received a “Notice and Opportunity to Respond and Advise” letter from the CFPB late last year about a “potential enforcement action.”
“We are currently responding to such inquiries from governmental authorities relating to certain aspects of our business,” Altisource says in its filing. “We believe it is premature to predict the potential outcome or to estimate any potential financial impact in connection with any of these inquiries.
“In conjunction with one such inquiry, on Nov. 10, 2016, Altisource received a Notice and Opportunity to Respond and Advise [NORA] letter from the CFPB indicating that the CFPB is considering a potential enforcement action against Altisource relating to an alleged violation of federal law that primarily concerns certain technology services provided to Ocwen,” Altisource’s 10-K states. “We understand that a NORA letter provides the recipient an opportunity to present its position to the CFPB before an enforcement action is recommended or commenced. On Dec. 15, 2016, we provided a written response to the NORA letter setting forth the legal, policy and factual reasons why we believe an enforcement action is not warranted.
“We are committed to resolving any potential concerns of the CFPB,” Altisource’s 10-K states. “If the CFPB were to bring an enforcement action against us, the resolution of such action could have a material adverse impact on our business, reputation, financial condition and results of operations. However, we believe it is premature to predict the potential outcome or to estimate any potential financial impact in connection with any potential CFPB enforcement
However, the CFPB is yet to announce any new enforcement action against Altisource or Ocwen.
In a separate 10-K filing last month, Ocwen also says it is “engaged with the CFPB in efforts to resolve certain concerns the CFPB has expressed relating to our servicing practices and technology.”
These concerns primarily stem from the CFPB examination that began in 2014.
“Our negotiations with the enforcement staff of the CFPB could result in a consent order with the CFPB and could entail payment of monetary amounts by us or injunctive relief, among other consequences,” Ocwen says in its filing. “In accordance with the Financial Accounting Standards Board’s Accounting Standards Codification 450 (ASC 450), we have accrued $12.5 million as of Dec. 31, 2016, as a result of our negotiations with the CFPB.
“We have not reached any agreement with the CFPB and cannot predict whether or when we may reach such an agreement,” Ocwen adds. “If we are unable to agree upon a resolution, the CFPB could bring an adversarial enforcement action against us. An adversarial enforcement action could be costly to defend, could adversely affect our reputation, and could adversely impact our relationships with counterparties, including lenders, among other consequences. Accordingly, whether or not we reach an agreement after discussions with the CFPB, it is possible that we could incur losses that materially exceed the amount accrued as of Dec. 31, 2016, and the resolution of the matters raised by the CFPB could have a material adverse impact on our business, reputation, financial condition, liquidity and results of operations.”
The news follows Ocwen’s announcement in February that it had settled allegations brought by the California Department of Business Oversight (DBO) alleging that Ocwen had failed to turn over documentation showing that it complies with the state’s laws.
As per that settlement, the company agreed to pay a fine of $25 million and to deliver about $198 million in debt forgiveness through loan modifications to California borrowers over a three-year period.
Perhaps more importantly, the settlement lifted restrictions that prevented Ocwen from acquiring MSRs in California.
There were no allegations that the documentation in question was false or misleading – just that it had not been provided. Under an initial settlement related to that same action, Ocwen paid a $2.5 million fine and was required to install an independent monitor at its own expense.