Over the course of last year, Ocwen Financial detailed its efforts to rid itself of the mortgage servicing restrictions placed on it by a 2015 settlement with the California Department of Business Oversight over claims that Ocwen failed to turn over documentation showing that it complied with California laws.
In various filings with the Securities and Exchange Commission and calls with investors, Ocwen said that it set aside $25 million to buy its way out of the CDBO settlement, which prohibited Ocwen from acquiring any additional mortgage servicing rights for loans in California and placed a monitor inside Ocwen’s operations to ensure the company’s compliance with the settlement.
Ocwen got its wish last week, when it announced that it reached a new settlement with the CDBO to remove the state’s restrictions on its business.
But the price tag turned out to be much higher than the $25 million in cash Ocwen previously set aside. The final settlement also included $198 million in debt forgiveness.
So why was the settlement so big? Turns out that Ocwen’s operations weren’t exactly squeaky clean while the monitor was in place.
Details released by the CDBO in conjunction with the new settlement show that the monitor implanted in Ocwen’s operations found “hundreds” of violations of state and federal law over the last 18 months, including violations of the California Homeowner Bill of Rights.
According to the CDBO, Ocwen violated federal law by:
- Collecting borrower-paid mortgage insurance premiums after borrowers were obligated to make such payments
- Failing to inform borrowers of the timelines to accept or reject loan modification offers
- Sending inaccurate and untimely notices to borrowers who were more than 45 days delinquent on their payments, or sometimes failing to send such notices at all
- Failing to promptly submit corrected information to credit reporting agencies on California borrowers when Ocwen previously had provided erroneous information
The CDBO said that Ocwen also violated the federal Servicemembers Civil Relief Act by failing to cut the monthly interest rate for California active duty personnel to 6% in a timely manner.
According to the CDBO, Ocwen also violated the California Homeowner Bill of Rights by:
- Failing to provide borrowers all required information in loss mitigation denial notices
- Wrongly informing borrowers, in loss mitigation denial notices, they were current on their payments
- Providing borrowers inaccurate information on notices of default
But according to the CDBO, that’s not all of what Ocwen did wrong, and those additional findings could push the total settlement even further north of $220 million.
As Ocwen noted Friday evening, the settlement includes a $25 million payment in cash, along with the company being required to provide $198 million in debt forgiveness through loan modifications to existing California borrowers over a three-year period.
According to the CDBO, $20 million of that fine will be used for borrower restitution, with the remaining $5 million to be used for penalties, attorney fees, and the costs of an administrator to oversee the restitution payments.
But as the CDBO notes, there are additional funds that could be heading to California borrowers, thanks to Ocwen allegedly backdating letters sent to borrowers in distress.
This isn’t the first time that Ocwen has been accused of letter-dating issues. Last year, Ocwen’s issues with borrower letters were also the cause of a failed compliance test given by the monitor of the National Mortgage Settlement.
California also uncovered issues with borrower letters coming from Ocwen, and those issues could raise the settlement total.
As the CDBO notes, the settlement requires Ocwen to pay additional restitution to California borrowers harmed by what it calls “Ocwen’s ‘letter-dating’ problem.”
The CDBO states that it found that Ocwen mailed time-sensitive letters to borrowers after the date on the letter, often by many days. “In some cases, the delays endangered borrowers’ ability to obtain loan modifications,” the CDBO said.
The CDBO adds that Ocwen has already paid an estimated $2 million to 3,127 California borrowers affected the letter-dating issues.
According to the CDBO, that restitution came after borrowers filed claims through a remediation program previously initiated by Ocwen.
But the settlement requires Ocwen to re-solicit claims from an additional 19,295 affected borrowers and pay them restitution if they are eligible.
Based on the average restitution paid to those first 3,127 borrowers ($639.59), if all the additional affected borrowers are indeed eligible for restitution, Ocwen’s additional payout could be at least $12 million.
As the CDBO notes, Ocwen cannot acquire any mortgage servicing rights in California until the initial $25 million settlement payment is made.
Additionally, the CDBO will select a third-party to administer the debt relief and borrower restitution provisions of the settlement.
The CDBO said that the administrator will also monitor Ocwen’s implementation of a “previously-approved action plan” to correct deficiencies in its servicing practices, policies and procedures.
“This is a fair and just settlement for California consumers,” said CDBO Commissioner Jan Lynn Owen. “The terms will hold Ocwen accountable for widespread violations of laws that harmed borrowers in our state.”