Ocwen cleared of wrongdoing in multibillion dollar mortgage bond fight

Faced allegations of negligence from bond investors, including BlackRock, Pimco

Early in 2015, a group of mortgage bond investors that reportedly included BlackRockMetLife, and Pimco accused Ocwen Financial of violating its duties as a mortgage servicer by failing to properly collect payments on $82 billion of home loans and accused Ocwen of engaging in “imprudent and improper servicing practices.”

The investors, represented by the law firm of Gibbs & Bruns, went on to accuse Ocwen of costing them $26 billion, stating that if other mortgage servicers provided the services done by Ocwen for the residential mortgage-backed securities trusts in question, the investors would have received approximately $26 billion more in cash flows.

But now, after a yearlong independent investigation initiated by Wells Fargo, the deals’ master servicer, found no evidence of the litany of accusations made by Gibbs & Bruns on behalf of the investors, Ocwen is off the hook.

The issue began in January 2015, when Gibbs & Bruns brought the allegations against Ocwen, stating at the time that a “lengthy investigation and analysis” by “independent, highly qualified experts” determined that “Ocwen has failed to perform, in material respects, its contractual obligations as servicer and/or master servicer.”

Gibbs & Bruns later sent a letter to the deals’ trustee, Wells Fargo, accusing Ocwen of a laundry list of failures as a mortgage servicer, and suggesting that Ocwen’s actions cost the bond investors approximately $26 billion.

[HousingWire will contact Gibbs & Bruns during working hours today and this article will be updated when appropriate.]

Ocwen repeatedly and vociferously denied the allegations levied against it by Gibbs & Bruns, stating that the investors had a far different goal than it appeared.

“Your letter obscures the ultimate objective of your investor clients: to stop servicers from modifying loans and force them to foreclose on and evict as many struggling homeowners as quickly as possible,” Ocwen said in January 2015.

Ocwen also called the charges “baseless” and “groundless,” and later Ocwen accused the bond investors of having a “pro-foreclosure, anti-modification” agenda.

“The notice is the latest effort in a long campaign by Blackrock, PIMCO, Kore Advisors, MetLife and Neuberger Berman Europe Limited to try and impose changes to standard servicing practices, with the goal of forcing more home foreclosures and fewer loan modifications,” Ocwen said in March 2015.

Ocwen also claimed that the investors tried to push the servicer to expedite its foreclosure timelines, in direct opposition to the various stipulations and restrictions that Ocwen is currently under from various financial regulators, including the New York Department of Financial Services and the Consumer Financial Protection Bureau, among others.

“These investors’ pro-foreclosure, anti-modification agenda is driven by their desire to increase their own financial returns on their specific tranche-level holdings in RMBS trusts, at the expense of long-term gains to the trusts as whole, through sustainable modifications,” Ocwen continued.

At the time, Ocwen said that the bond holders had a clear goal – keeping underwater borrowers underwater.

According to Ocwen’s letter, the bond holders did not want Ocwen to engage in loan modifications under the government’s Home Affordable Modification Program, claiming that loan modifications yield lower cash flows to bond holders.

In the wake of the allegations, Wells Fargo, in its role as master servicer for 42 of the 119 RMBS trusts launched an investigation into the allegations to ensure that the mortgage bond investors were indeed getting their proper return. Wells Fargo engaged Duff & Phelps, a global corporate valuation and financial advisory firm, to conduct a thorough investigation into Ocwen’s operations to determine if any of the investors’ claims held water.

The investors accused Ocwen of conflicts of interests and use of affiliated vendors, imprudent modification practices, failure to account for principal and interest to the trusts, poor record-keeping and failure to comply with applicable laws and regulations, poor trust performance, recouping advances at time of modifications in violation of the pooling and servicing agreements, and use of trust assets to resolve investigations into Ocwen's servicing.

According to information released Wednesday morning by Ocwen, Duff & Phelps conducted a 12-month review of Ocwen’s servicing operations, accounting, loan modifications, borrower compliance, and operations and governing practices, which included analysis of thousands of servicing files, data points, invoices, and a comprehensive review of the company’s systems and records.

And after that yearlong investigation, Duff & Phelps found no evidence of the negligence and misconduct that Ocwen was alleged to be engaged in.

According to Ocwen, the Duff & Phelps investigation found the following:

  • No evidence that Ocwen failed to account for principal and interest payments to the master serviced trusts
  • No evidence that Ocwen charged the Master Serviced Trusts for any undisclosed or “mysterious” expenses
  • No evidence that Ocwen made negative net present value modifications in order to maximize servicing fees and prematurely recoup advances
  • No evidence that Ocwen engaged in modifications in order to prematurely recover advances at the time of modification

Duff & Phelps’ investigation also:

  • Did not find evidence to conclude generally that Ocwen made extreme and imprudent modifications
  • Found that Ocwen applied the Stop Advance Tag on loans consistently with Ocwen’s Stop Advance model and not with regard to whether or not the loan had been modified or whether the borrower defaulted immediately after modification
  • Did not find evidence that Ocwen failed to comply with the Servicemembers Civil Relief Act requirements for borrowers on active military duty
  • Did not find evidence sufficient to conclude generally that Ocwen engaged in deceptive, misleading, or inadequate practices with regard to newly boarded loans
  • Did not find evidence sufficient to conclude generally that Ocwen improperly imposed lender-placed insurance
  • Did not find evidence to conclude generally that the Master Serviced Trusts were charged higher fees in connection with sales of REO properties involving Hubzu auctions or REALHome brokers as opposed to traditional sales and/or unrelated brokers

Unsurprisingly, Ron Faris, Ocwen’s president and CEO, welcomed the results of the investigation.

“From day one, we knew that an independent review of the facts would confirm that Ocwen serviced, and continues to service today, loans in accordance with its contractual obligations,” Faris said in a statement.

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