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State banking regulators crush Ocwen's business with sweeping new restrictions

Mortgage business obliterated by state banking regulators

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Citing numerous issues with consumer escrow accounts and a “deficient financial condition,” a consortium of state banking regulators just put Ocwen Financial’s mortgage business on life support.

In a bombshell announcement from the North Carolina Commissioner of Banks, according to an email notification sent to HousingWire, more than 20 state mortgage regulators issued cease-and-desist orders to Ocwen.

This order, the email states, prohibits the acquisition of new mortgage servicing rights and the origination of mortgage loans by Ocwen Loan Servicing, a subsidiary of Ocwen, until the company is “able to prove it can appropriately manage its consumer mortgage escrow accounts.”

According to the order: The reconciliation of escrow accounts would cost $1.5 billion. That's beyond Ocwen’s financial capacity to fund. In short, Ocwen just doesn't have that kind of money.

The news couldn’t come at a worse time for Ocwen, which was on the verge of being able to acquire mortgage servicing rights again, thanks to a newly signed agreement with the New York Department of Financial Services.

The NYDFS put Ocwen out of the MSR acquistion business in 2014, and the company has been working to address those issues ever since.

That agreement moved Ocwen one step closer to being back in the MSR business again, but Thursday’s order slams the brakes on that progress.

According to the cease-and-desist order from the North Carolina Commissioner of Banks, Ocwen “has engaged in, or is engaging in, or is about to engage in, acts or practices constituting violations of state and federal law and applicable regulations.”

The N.C. Commissioner of Banks’ office stated that the orders are the “culmination of several years of examinations and monitoring that revealed the company is mismanaging consumer mortgage escrow accounts.”

Ocwen is also accused of operating “unlicensed mortgage servicing facilities in certain states in apparent violation of state licensing statutes over a period of several years.”

Additionally, the announcement states that some of the state orders also require Ocwen to cease any unlicensed activity.

“As regulators, we encourage and advise companies to remain compliant with state and federal laws,” N.C. Commissioner of Banks Ray Grace said. “However, Ocwen has consistently failed to correct deficient business practices that cause harm to borrowers. We cannot allow this to continue.”

The cease-and-desist order states that the Multi-State Mortgage Committee, a committee of state mortgage regulators, agreed to address their enforcement actions in a “collective and coordinated manner.”

According to the order, on Feb. 28, 2015, the states of Florida, Maryland, Massachusetts, Mississippi, Montana, and Washington conducted a Multi-State Examination of Ocwen in order to determine Ocwen’s compliance with applicable federal and state laws and regulations, financial condition, and control and supervision of the licensed mortgage servicing operations.

That examination covered the period of Jan. 1, 2013 through Feb. 28, 2015.

The order states that during that examination, the investigators identified “several violations of state and federal law, including, but not limited to, consumer escrow accounts that could not be reconciled and willful and ongoing unlicensed activity in certain states.”

The investigation also determined that Ocwen’s financial condition was “significantly deteriorating.”

The order also states that the examining states were unable to gather “comprehensive documentation of the extent of unlicensed activity because Ocwen’s management failed to respond to requests for information in a timely manner.

But, the examination found that Ocwen subsidiaries were conducting unlicensed servicing activity in numerous jurisdictions.

The examination found that Ocwen was “unable to accurately reconcile many of the consumer escrow accounts in its portfolio.”

The examination also found that Ocwen “failed to make timely disbursements to pay for taxes and insurance from escrow accounts on numerous loans.”

According to the order, the examination also found that Ocwen “routinely sent consumers inaccurate, confusing, and/or misleading escrow statements.”

Additionally, the order claims that in 2015, Ocwen failed to provide key financial documents and reconcilements of its financial statements to regulators.

Based on the findings of the examinations, the order states that the states and Ocwen entered into a “Memorandum of Understanding” on Dec. 7, 2016.

That order required Ocwen to retain an independent auditing firm to perform a comprehensive audit and reconciliation of all consumer escrow accounts. Ocwen was required to provide that audit to the MMC no later than Jan. 13, 2017.

But Ocwen didn’t provide that audit, claiming that reconciling the escrow accounts would be extremely cost prohibitive.

From the order:

Ocwen’s response to the state regulators on January 13, 2017, was that the reconciliation of escrow accounts, which is paramount in ensuring the appropriate management of consumer funds, would cost $1.5 billion and be well beyond Ocwen’s financial capacity to fund. Ocwen has suggested instead that a sample of 457 escrow accounts be reconciled out of 2.5 million active first lien escrow accounts that Ocwen has serviced since January 2013. This proposal could leave a vast number of consumers with unaudited and inaccurate escrow accounts.

The order continues:

The company is currently facing numerous substantiated consumer complaints regarding escrow accounts that have been mismanaged, resulting in significant harm to consumers, and request for reimbursement of monies wrongfully withheld or misapplied.

The Memorandum of Understanding also stipulated that Ocwen provide a “viable going forward business plan that encompassed an analysis of its financial condition going forward.”

According to the order, Ocwen’s submitted business plan “did not provide a complete assessment of its financial condition because it excluded significant liabilities.”

From the order:

If the going forward plan accurately accounted for known or anticipated regulatory penalties and other operational costs, including, but not limited to, the expenses of moving to a new servicing platform and complete reconciliation of consumer escrow accounts with restitution to impacted borrowers, it would indicate that Ocwen continuing as a going concern would be in doubt.

Therefore, the order stipulates the following:

  • Ocwen shall immediately cease acquiring new mortgage servicing rights, and acquiring or originating new residential mortgages serviced by Ocwen, until Ocwen can show it is a going concern by providing a financial analysis that encompasses all of the liabilities Ocwen currently maintains, as well as liabilities it has knowledge it will incur in the course of its business
  • Ocwen shall immediately cease from acquiring new mortgage servicing rights, and acquiring or originating new residential mortgages serviced by Ocwen, until Ocwen can provide the state regulators with a reconcilement of its escrow accounts showing that consumer funds are appropriately collected, properly calculated, and disbursed accurately and timely

In a statement, Ocwen said that it is reviewing the states' orders and will comment further when appropriate.

To read the cease-and-desist order in full, click here.

[Update: This article is updated a brief statement from Ocwen.]

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