Lending Servicing

CFPB sues Ocwen, alleges total failure of mortgage servicing process

Claims "widespread errors, shortcuts, runarounds cost borrowers money, homes"

CFPB

April 20, 2017 is turning into D-Day for Ocwen Financial.

On Thursday, a group of state banking regulators issued a series of cease-and-desist orders to Ocwen that prohibit 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.”

But that’s only one front. Ocwen now has a much bigger fight on its hands – with the Consumer Financial Protection Bureau.

The CFPB announced Thursday that it is suing Ocwen Financial for “failing borrowers at every stage of the mortgage servicing process.”

According to the CFPB, its lawsuit alleges that Ocwen cost borrowers money, and in some cases, their homes, with its years of “widespread errors, shortcuts, and runarounds.”

In its lawsuit, the CFPB says that Ocwen “botched basic functions like sending accurate monthly statements, properly crediting payments, and handling taxes and insurance.”

The lawsuit also claims that also “illegally foreclosed on struggling borrowers, ignored customer complaints, and sold off the servicing rights to loans without fully disclosing the mistakes it made in borrowers’ records.”

The CFPB claims that it uncovered “substantial evidence that Ocwen has engaged in significant and systemic misconduct at nearly every stage of the mortgage servicing process.”

Recently, Ocwen began to signal that it faced a CFPB investigation into it servicing practices, even going so far as to set aside $12.5 million for a settlement with the bureau.

It’s not currently known if this lawsuit is related to the CFPB investigation that Ocwen disclosed to investors back in October, but it appears that the company’s negotiations with the bureau proved unsuccessful.

Per the CFPB release, Ocwen serviced almost 1.4 million loans with an aggregate unpaid principal balance of $209 billion, as of the end of 2016.

The lawsuit charges Ocwen with a raft of servicing violations, including (excerpted in full from the CFPB, emphasis added by HousingWire):

  • Serviced loans using error-riddled information: Ocwen uses a proprietary system called REALServicing to process and apply borrower payments, communicate payment information to borrowers, and maintain loan balance information. Ocwen allegedly loaded inaccurate and incomplete information into its REALServicing system. And even when data was accurate, REALServicing generated errors because of system failures and deficient programming. To manage this risk, Ocwen tried manual workarounds, but they often failed to correct inaccuracies and produced still more errors. Ocwen then used this faulty information to service borrowers’ loans. In 2014, Ocwen’s head of servicing described its system as “ridiculous” and a “train wreck.”
  • Illegally foreclosed on homeowners: Ocwen has long touted its ability to service and modify loans for troubled borrowers. But allegedly, Ocwen has failed to deliver required foreclosure protections. As a result, the Bureau alleges that Ocwen has wrongfully initiated foreclosure proceedings on at least 1,000 people, and has wrongfully held foreclosure sales. Among other illegal practices, Ocwen has initiated the foreclosure process before completing a review of borrowers’ loss mitigation applications. In other instances, Ocwen has asked borrowers to submit additional information within 30 days, but foreclosed on the borrowers before the deadline. Ocwen has also foreclosed on borrowers who were fulfilling their obligations under a loss mitigation agreement.
  • Failed to credit borrowers’ payments: Ocwen has allegedly failed to appropriately credit payments made by numerous borrowers. Ocwen has also failed to send borrowers accurate periodic statements detailing the amount due, how payments were applied, total payments received, and other information. Ocwen has also failed to correct billing and payment errors.
  • Botched escrow accounts: Ocwen manages escrow accounts for over 75% of the loans it services. Ocwen has allegedly botched basic tasks in managing these borrower accounts. Because of system breakdowns and an over-reliance on manually entering information, Ocwen has allegedly failed to conduct escrow analyses and sent some borrowers’ escrow statements late or not at all. Ocwen also allegedly failed to properly account for and apply payments by borrowers to address escrow shortages, such as changes in the account when property taxes go up. One result of this failure has been that some borrowers have paid inaccurate amounts.
  • Mishandled hazard insurance: If a servicer administers an escrow account for a borrower, a servicer must make timely insurance and/or tax payments on behalf of the borrower. Ocwen, however, has allegedly failed to make timely insurance payments to pay for borrowers’ home insurance premiums. Ocwen’s failures led to the lapse of homeowners’ insurance coverage for more than 10,000 borrowers. Some borrowers were pushed into force-placed insurance.
  • Bungled borrowers’ private mortgage insurance: Ocwen allegedly failed to cancel borrowers’ private mortgage insurance, or PMI, in a timely way, causing consumers to overpay. Generally, borrowers must purchase PMI when they obtain a mortgage with a down payment of less than 20%, or when they refinance their mortgage with less than 20% equity in their property. Servicers must end a borrower’s requirement to pay PMI when the principal balance of the mortgage reaches 78% of the property’s original value. Since 2014, Ocwen has failed to end borrowers’ PMI on time after learning information in its REALServicing system was unreliable or missing altogether. Ocwen ultimately overcharged borrowers about $1.2 million for PMI premiums, and refunded this money only after the fact.
  • Deceptively signed up and charged borrowers for add-on products: When servicing borrowers’ mortgage loans, Ocwen allegedly enrolled some consumers in add-on products through deceptive solicitations and without their consent. Ocwen then billed and collected payments from these consumers.
  • Failed to assist heirs seeking foreclosure alternatives: Ocwen allegedly mishandled accounts for successors-in-interest, or heirs, to a deceased borrower. These consumers included widows, children, and other relatives. As a result, Ocwen failed to properly recognize individuals as heirs, and thereby denied assistance to help avoid foreclosure. In some instances, Ocwen foreclosed on individuals who may have been eligible to save these homes through a loan modification or other loss mitigation option.
  • Failed to adequately investigate and respond to borrower complaints: If an error is made in the servicing of a mortgage loan, a servicer must generally either correct the error identified by the borrower, called a notice of error, or investigate the alleged error. Since 2014, Ocwen has allegedly routinely failed to properly acknowledge and investigate complaints, or make necessary corrections. Ocwen changed its policy in April 2015 to address the difficulty its call center had in recognizing and escalating complaints, but these changes fell short. Under its new policy, borrowers still have to complain at least five times in nine days before Ocwen automatically escalates their complaint to be resolved. Since April 2015, Ocwen has received more than 580,000 notices of error and complaints from more than 300,000 different borrowers.
  • Failed to provide complete and accurate loan information to new servicers: Ocwen has allegedly failed to include complete and accurate borrower information when it sold its rights to service thousands of loans to new mortgage servicers. This has hampered the new servicers’ efforts to comply with laws and investor guidelines.

The CFPB also accuses Ocwen of failing to “remediate borrowers for the harm it has caused, including the problems it has created for struggling borrowers who were in default on their loans or who had filed for bankruptcy.”

In a statement, CFPB Director Richard Cordray recapped Ocwen’s alleged failings.

“Ocwen has repeatedly made mistakes and taken shortcuts at every stage of the mortgage servicing process, costing some consumers money and others their homes,” Cordray said. “Borrowers have no say over who services their mortgage, so the Bureau will remain vigilant to ensure they get fair treatment.”

Ocwen released a lengthy statement in response to the CFPB's allegations. For a look at that, click here.

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