Just before the Consumer Financial Protection Bureau dropped the bomb on Ocwen Financial on Thursday, accusing the nonbank of failing in every area of mortgage servicing, a series of state banking regulators also levied a series of serious allegations about Ocwen’s business practices.
Namely, the state regulators, led by North Carolina, accused Ocwen of having widespread errors on consumers’ escrow accounts and said that the company’s financial situation is tenuous, at best.
Ocwen released a lengthy statement Thursday stating that it intends to fight the CFPB’s lawsuit, claiming that the bureau’s charges are “inaccurate” and “unfounded.”
And early Friday morning, Ocwen released another lengthy statement, but this one is in response the state banking regulators allegations.
As one might expect, Ocwen said that it disagrees with the state regulators’ charges and plans to fight back.
“As with the recent CFPB enforcement action, Ocwen strongly disputes the key allegations made in the state regulators’ cease and desist orders that Ocwen’s mortgage loan servicing practices have caused substantial consumer harm,” Ocwen said in its statement.
“Ocwen will not sign unfair and unjust consent orders that make impractical demands that no other market participant could rationally accept, and which would harm consumers,” Ocwen continued. “Under these circumstances, Ocwen has a responsibility to its customers, shareholders, and employees to vigorously defend the company against unfounded claims while continuing to work with state regulators to resolve any valid concerns.”
Ocwen also provided detailed responses to each of the state regulators’ charges.
One of the main issues brought up by the state regulators is that Ocwen is “unable to accurately reconcile many of the consumer escrow accounts in its portfolio.”
In a response to the Multi-State Mortgage Committee’s original investigation, Ocwen said that the reconciliation of escrow accounts would cost $1.5 billion, which the company claims is beyond its financial capacity to fund.
But the states regulators did not take that response well, suggesting that Ocwen could potentially have “a vast number of consumers with unaudited and inaccurate escrow accounts.”
In response to those charges, Ocwen said Friday that its escrow administration practices are “subject to frequent review or examination by independent third parties acting on behalf of mortgage loan investors and rating agencies.”
Ocwen said that these independent reviews “consistently confirmed Ocwen’s escrow practices are in line with common industry standards for timeliness and accuracy.”
Ocwen adds: “No mortgage servicer is perfect – to the extent mistakes are made, we have a process to identify and remediate consistent with other mortgage servicers.”
Ocwen claims that it provided the estimate of the expected expense of an individual loan escrow account review for approximately 2.5 million loans over a four-year period to be an estimated to be $1.5 billion, or approximately $600 per file, as provided by a third-party.
Ocwen said that it also provided an alternative of a “statistically sound sampling methodology recommended by an independent third party.”
According to Ocwen, this option is “consistent with methods used in other regulatory settlements and with the Multi-State Mortgage Committee’s examination manual practices.”
Ocwen said that it is engaging the independent review firm to conduct that review.
The state banking regulators also accused Ocwen of being unsound financially, a charge that Ocwen disputes.
From Ocwen’s statement:
Ocwen disagrees with any allegation it is not financially sound. Despite significant operating losses from 2014 to 2016 driven by a shrinking portfolio and $171 million of state and national regulatory monitoring expenses, Ocwen generated over $1.4 billion of positive operating cash flow. The company ended 2016 with $257 million of cash on the balance sheet. Additionally, in December 2016, Ocwen refinanced its corporate debt, significantly extending the maturity dates and demonstrating significant lender confidence in Ocwen. Over this time period, Ocwen reduced its corporate debt by over $942 million, or 58%, dropping its corporate debt-to-equity ratio from an already conservative 1.6x in 2014 to 1.0x in 2016. Ocwen remains one of the least levered non-bank servicers today.
Ocwen said that it provide the state regulators with “remarkable transparency” into its operations, but that still wasn’t enough for the states.
“Ocwen provides a variety of financial information to select individual states as well as the MMC, such as recurring liquidity reports, monthly results, and future financial and cash projections,” Ocwen said in its statement.
“Additionally, it completed a comprehensive business plan in December 2016, and provided a robust going concern analysis prepared in conjunction with the issuance of Ocwen’s annual report,” Ocwen continued. “Despite this remarkable transparency, the MMC continues to ask Ocwen how it would handle ‘contingent liabilities’ such as a hypothetical settlement with CFPB and the escrow analysis (requested by the MMC).”
Another issue brought up by the states is Ocwen’s alleged operating of “unlicensed mortgage servicing facilities in certain states in apparent violation of state licensing statutes over a period of several years.”
Ocwen states that there have been issues in the past with the company’s licensing, but now believes that all of those issues are in the past.
“Ocwen has worked diligently to correct perceived licensing concerns and has entered into recent settlements with three states, without admitting or denying wrongdoing,” Ocwen stated. “Ocwen believes it is properly licensed in all states where it conducts business and welcomes the opportunity to demonstrate its compliance to any state regulators who may still have questions or concerns.”
Ocwen adds that the company has been in “regular communication” with the state regulators in question for the last two years and progress has been made.
“In fact, the state regulators informed the company that its cooperation and the amount of information provided by the company over the past 18 months had been constructive in building stronger supervisory relationships and solidifying Ocwen’s place as a necessary market participant in servicing mortgage loans and keeping borrowers in their homes,” Ocwen said in its statement. “Ocwen intends to vigorously defend itself against yesterday’s actions by state regulators while at the same time working with state regulators to find common ground to resolve differences.”