Subprime Mortgage Giant Ocwen Rocked by U.S. Suit Claiming AbuseBy and
Shares of mortgage collection company tumble most on record
Consumer Financial Protection Bureau alleges widespread errors
Ocwen Financial Corp., one of the nation’s largest processors of consumer mortgage payments, was rocked Thursday by fresh allegations it mishandled accounts and in some cases illegally foreclosed on homeowners.
The company’s shares lost more than half their value after state and federal authorities alleged widespread failures at the company and blocked it from acquiring new business. State regulators said fixing the company’s problems could put it under. Ocwen said the U.S.’s complaints were unfounded and that it did not cause substantial harm to consumers.
The accusations put a new cloud over the future of Ocwen, which played a key role in helping banks get rid of their exposure to subprime home loans after the 2008 financial crisis. From 2009 through the end of 2013, the number of loans the company was collecting on jumped eight-fold, as it mopped up business that big U.S. banks were eager to get rid of.
After the crisis, big banks found themselves foreclosing on millions of subprime and even prime mortgages, a task they were ill-equipped to handle. Building the systems and hiring the staff required to handle the work was expensive. Lenders were reluctant to invest in a business that would shrink over time as bad mortgages were either fixed or foreclosed on. New global capital rules also made it expensive for banks to continue collecting payments, a business known as servicing.
Ocwen and other companies bought the rights to service those mortgages, and said they were focusing on improving loan terms for borrowers so consumers could stay in their homes. The companies have since been plagued by accusations from regulators that they neglected to make necessary investments to properly handle their new business.
On Thursday the U.S. Consumer Financial Protection Bureau said in a lawsuit that Ocwen botched basic functions like sending accurate monthly statements, crediting payments and handling taxes and insurance from escrow accounts. Florida’s Attorney General filed a similar suit. The failures resulted in harm to consumers, including illegal foreclosures and bogus fees, the CFPB said. The company has received error notices and complaints from more than 300,000 borrowers since April 2015, the CFPB said. As of December, it collected payments on around 1.4 million mortgages.
“Ocwen has consistently failed to correct deficient business practices that cause harm to borrowers,” said Ray Grace, North Carolina’s Commissioner of Banks, in a press release on Thursday. “We cannot allow this to continue.”
The company said in a statement that it believes its mortgage servicing practices have resulted in “substantial benefits” to consumers, and that it has hired more than 350 people in its risk, audit and compliance areas since 2013. It said many of the issues that the CFPB raised were already addressed by a 2013 settlement it signed, and that only a small portion of its customers were harmed.
“Today’s suit can only be viewed as a politically-motivated attempt by the CFPB to grab headlines in reaction to the change of administration and recent scrutiny of the CFPB’s activities," said the company, based in West Palm Beach, Florida. House Financial Services Committee Chairman Jeb Hensarling plans to this month release his proposal for overhauling the Dodd-Frank Act, and has said he wants to try to remove much of the CFPB’s regulatory powers.
The company’s defiant tone may be a sign that it believes it has more support in Washington with Donald Trump in the White House, said Isaac Boltansky, a policy analyst at Compass Point.
“The election has emboldened companies to challenge the CFPB in ways we haven’t seen before,” Boltansky said. The company is likely hoping that either Congress or the White House will change the CFPB’s priorities, he added.
Going along with regulators could prove costly for Ocwen. In January, Ocwen submitted a plan to a group of more than 20 state regulators to fix problems with the way it deals with escrow accounts, and said that reconciling the accounts would cost $1.5 billion, and would be “well beyond Ocwen’s financial capacity to fund,” according to a North Carolina cease-and-desist order on Thursday.
That same order said that if Ocwen properly accounted for known or anticipated regulatory penalties and required operational fixes, “it would indicate that Ocwen continuing as a going concern would be in doubt.” Ocwen said in its statement that it had not yet reviewed the orders from state regulators, which it only just received.
The company’s shares on Thursday fell $2.91 to $2.49, the company’s biggest ever share drop in percentage terms.
In the 2013 settlement with the CFPB and 49 states, Ocwen agreed to provide $2.1 billion in relief to borrowers. Richard Cordray, the director of the CFPB, said that Ocwen “took advantage of borrowers at every stage of the process.”
The following year, the company agreed with New York banking regulators to stop acquiring mortgage servicing business until it made improvements, including updating its information technology systems. That consent order noted, among other problems, that Ocwen had a patchwork of systems from companies, many of which were not compatible, and that problems in one would often create difficulties in others. The result was giving borrowers wrong information, having inaccurate records, and backdating key correspondence. William Erbey, the company’s founder and then-executive chairman, agreed to step down as a result of the agreement. Ocwen said in October that it was moving closer to asking New York to lift the curbs.
In February, the company settled with California for $225 million over allegations including its having delayed letters about mortgage payments. Ocwen didn’t admit to the allegations.
The U.S. case is Consumer Financial Protection Bureau v. Ocwen Financial Corp., 17-80495, U.S. District Court for the Southern District of Florida (West Palm Beach)
— With assistance by Kenneth Pringle, and Dan Wilchins