Ocwen Chairman Erbey resigns as company admits misconduct
Company to pay $150 million to homeowners
Ocwen Financial (OCN) Executive Chairman William Erbey will resign from the Ocwen family of companies and Ocwen will pay $150 million to homeowners under an agreement with the New York Department of Financial Services.
Ocwen admitted in the agreement with the New York regulatory agency that it didn't properly deal with distressed homeowners and failed to maintain adequate systems for servicing hundreds of billions of dollars in mortgages.
NYDFS Superintendent Benjamin Lawsky said the action addresses serious conflict of interest issues uncovered during the department’s investigation.
Erbey will also resign as Chairman of the Board of Directors of each of four related companies: Altisource Portfolio Solutions S.A. (ASPS), Altisource Residential Corporation (RESI), Altisource Asset Management Corporation (AAMC), and Home Loan Servicing Solutions, Ltd. (HLSS).
As of these resignations, Erbey will have no directorial, management, oversight, consulting, or any other role at Ocwen or any related party, or at any of Ocwen’s or the related parties’ affiliates or subsidiaries.
Additionally, Ocwen — the fourth-largest mortgage servicer in the country and largest subprime mortgage servicer in the United States — will undertake significant operational reforms to address serious servicing misconduct and conflict of interest issues at the company; have an NYDFS-selected, independent monitor on site for up to an additional three years; and provide “hard-dollar” assistance to New Yorkers totaling $150 million.
“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,” Lawsky said. “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.”
The NYDFS has been investigating Ocwen for its dealings, its acquisitions, backdating letters to borrowers and the close association of its companies throughout 2014.
Ocwen’s stock tumbled in early trading but analysts with Sterne Agee said that in the long run this could be good for the Ocwen companies.
“The settlement with the DFS (assuming the NYT has it right) will leave the company saddled with a number of changes that in the end, will create a more compliant (dare we say complacent) company, but cripple profitability for some time,” Sterne Agee analysts told HousingWire. “In addition, we do not know if the agreement will violate any of the terms of the global settlement or leave the company open to additional scrutiny.”
Meanwhile, it could be boon for other nonbanks in the space.
“From a competitive perspective, this leaves companies such as Nationstar (NSM) well positioned for any new servicing bids,” the analysts said. “But we must note, could curtail some of the activity of Solutionstar. This is something we need to explore.”
That $150 million in hard-dollar assistance Ocwen will pay includes:
- $50 million in direct, hard-dollar restitution payments to former and current Ocwen homeowners in New York. Ocwen homeowners in New York who lost their homes to foreclosure will receive a payment of $10,000 each. After the payments are made to foreclosed homeowners, the balance of the funds will be distributed equally to current and former Ocwen homeowners (up to $1,000 each) who have had foreclosure proceedings initiated against them but have not yet lost their homes to foreclosure, and those current Ocwen homeowners will also have the opportunity to be reviewed for a mortgage modification or other alternative to foreclosure.
- $100 million for housing, foreclosure relief, and community redevelopment programs supporting New York’s housing recovery.
The NYDFS said that Ocwen may not use so-called “soft-dollar” mortgage modifications of loans it does not own to satisfy any of this $150 million penalty. As a servicer, Ocwen is already under a legal obligation to make such modifications if they are in the best interest of homeowners and investors. As such, soft-dollar settlements do not represent either a punitive penalty to Ocwen for its misconduct or provide significant additional relief to consumers, the NYDFS said.
Moreover, Ocwen shall not seek or accept, directly or indirectly, reimbursement or indemnification with regard to any or all of the amounts payable under today's agreement; nor will it claim a U.S. tax deduction or tax credit for those payments.
Under the terms of the agreement, Ocwen will continue to not be permitted to acquire additional mortgage servicing rights.
Ocwen may not begin to acquire additional MSRs until and unless it receives prior approval from NYDFS, and meets benchmarks developed by the independent monitor concerning the adequacy of Ocwen’s onboarding process for newly acquired MSRs and its ability to adequately service both those newly acquired MSRs and its existing loan portfolio.
Ocwen is currently the fourth-largest mortgage loan servicer and the largest servicer of subprime loans in the United States, servicing an unpaid principal balance of approximately $430 billion.
In 2010 and 2011, NYDFS participated in a multistate examination of Ocwen, as well as entities ultimately acquired by Ocwen. The examination of Ocwen identified, among other things, deficiencies in Ocwen’s servicing platform and loss mitigation infrastructure, 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.
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.