Mortgage servicer Ocwen has agreed to pay a $100 million civil penalty to settle allegations brought by the New York Department of Financial Services (NYDFS) that the company violated numerous mortgage servicing rules designed to protect consumers.
The $100 million fine will be used by the state of New York for housing, foreclosure relief and community redevelopment programs. In addition, Ocwen will pay another $50 million directly to borrowers in New York who were impacted by the violations, including borrowers who were wrongly foreclosed upon due to the firm's sloppy handling of their mortgages.
What's more, William C. Erbey, the company's founder, will step down as executive chairman effective Jan. 16, and Barry Wish, a current director, will assume the role of non-executive chairman.
‘Today's agreement will deliver significant assistance to Ocwen homeowners in New York and provide a new path for the company to clean up its operations,’ says Benjamin Lawsky, superintendent of financial services for the NYDFS, in a statement. ‘We will continue to closely monitor Ocwen to ensure that it lives up to its obligations under this agreement and treats struggling homeowners with the respect and dignity they deserve.’
‘We are pleased to have reached a comprehensive settlement with the NYDFS and will act promptly to comply with the terms,’ says Ronald Faris, CEO of Ocwen, in a separate statement. ‘We believe this agreement is in the best interests of our shareholders, employees, borrowers and mortgage investors. We will continue to cooperate with the DFS in the implementation of the terms of this settlement, which we believe will allow Ocwen to continue to focus on what we do best – helping homeowners.’
The alleged violations – including the erroneous backdating of letters informing borrowers that they had been denied loan modifications, thus preventing them from being able to appeal – occurred between January 2009 and December of this year. As previously reported, Ocwen had set aside $100 million to increase its legal reserves in anticipation of the settlement. The firm says it will record an additional $50 million charge in its fourth quarter financial statements to reflect the final settlement amount.
‘I am grateful to the many associates who have worked alongside me and [I am] proud of what we have accomplished,’ Erbey says in a statement. ‘I am confident about Ocwen's future under the experienced leadership of the executive team. I have worked with [Faris] for more than 20 years, and he is uniquely qualified to lead Ocwen going forward.’
Ocwen has also agreed to provide additional borrower assistance. Starting in February, and for a period of two years, the firm will provide, upon request by a New York borrower, a complete loan file at no cost to the borrower.
In addition, it will provide every New York borrower who is denied a loan modification, short sale or deed-in-lieu of foreclosure with a detailed explanation of how this determination was reached.
What's more, Ocwen must provide one free credit report per year to any New York borrower on request if the firm made a negative report to any credit agency from Jan. 1, 2010. Ocwen must also make staff available for borrowers to inquire about their credit reporting, dedicating the resources necessary to investigate such inquiries and correct any errors.
In addition, the NYDFS will install its own monitor to assess Ocwen's operations. The monitor, who will be in place for a minimum of two years, will recommend and oversee implementation of corrections and establish progress benchmarks when it identifies weaknesses. This monitor will replace the one currently working on behalf of the NYDFS.
In addition, all future mortgage servicing rights deals that Ocwen enters must be reviewed and approved by the NYDFS.
Ocwen has been up against a string of regulatory actions during the past year that have not only shaken up company management but also caused the company's stock to plummet. Last month, Ocwen announced that its planned acquisition of $39 billion of residential mortgage servicing rights from Wells Fargo has been canceled 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, Lawsky 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.
‘We – both state regulators and the regulated servicers – need to make sure that these MSR transfers do not put homeowners at undue risk,’ Lawsky said. ‘We have a vital responsibility to protect consumers. There are real people at the other ends of these loans, and the ability to work with those homeowners is not something that these non-bank firms can build up overnight.’
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.
Just last week, Joseph Smith, the federal monitor overseeing the 2012 national mortgage settlement, wrote in a recent report that Ocwen 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,’ Smoth writes. ‘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.’