Mortgage

Ocwen fined $1 million for force-placed insurance issues

Runs afoul of National Mortgage Settlement guidelines

Ocwen Financial will pay a fine of $1 million for running afoul of the terms of the National Mortgage Settlement by not properly refunding force-placed insurance premiums to certain borrowers during the first quarter of 2017.

The fine, which was first reported by Law 360, stems from Ocwen failing one of the National Mortgage Settlement’s servicing metrics related to force-placed insurance, which is applied to borrowers who cannot or do not provide evidence that they have homeowner’s insurance.

The metric in question, Metric 29, measures whether Ocwen terminated force-placed insurance and refunded premiums to affected borrowers in a timely manner. Specifically, Ocwen is required to terminate force-placed insurance policies and refund prorated premiums within 15 days of receiving evidence of the borrower’s existing insurance policy.

According to a court filing by the settlement’s monitoring committee, which includes a number of state Attorneys General, several state mortgage regulators, and the Consumer Financial Protection Bureau, Ocwen exceeded the mandated error threshold for Metric 29 in the first quarter of 2017.

Under the terms of the National Mortgage Settlement, a servicer is allowed an error threshold of 5% on Metric 29, meaning Ocwen is permitted to violate the rule in 5% of the tested cases.

During the first quarter, Ocwen’s error rate was 6.54%, exceeding the allowable threshold.

And because Ocwen previously failed Metric 29 in 2015, this most recent failure triggered a $1 million fine.

As the court filing notes, Ocwen exceeded the threshold error rate for Metric 29 in the fourth quarter of 2015.

As a result of that failure, Ocwen implemented a corrective action plan in 2016. Then, after Ocwen returned to being regularly tested for Metric 29 in the first quarter of 2017, Ocwen was found to have a 6.54% error rate in the first quarter, which led to the $1 million fine.

In an attached response to the fine documentation, Ocwen suggested that the company’s failure could be purely procedural.

As Ocwen notes, the Metric 29 failure comes from a sample of 306 loans. Of those 306 loans, twenty did not satisfy the Metric 29 requirements, meaning Ocwen failed the test by only five loans.

Ocwen stated that the group charged with reviewing the company’s compliance was “not able to obtain a testing clarification from the (National Mortgage Settlement) Monitor regarding a population eligibility issue and thus determined that Metric 29 exceeded the 5% threshold error rate.”

According to Ocwen, if this issue had been decided in the company’s favor, Ocwen “very possibly” would not have exceeded the error threshold.

In a statement, Ocwen spokesperson John Lovallo said the company does not agree with the allegations but chose to settle nonetheless.

“As Ocwen disclosed in its most recent US Securities and Exchange Commission Form 10-Q, Ocwen exceeded the applicable error threshold on one metric for the first quarter of 2017,” Lovallo said in a statement. “As set forth in the Monitoring Committee’s motion and without agreeing with the Monitoring Committee’s allegations, Ocwen has agreed to pay $1 million to resolve this matter.”

In addition to the $1 million fine, Ocwen is also required to “immediately begin to provide notice to all borrowers with active wind or hazard force-placed insurance policies of its failure to comply with the applicable servicing standards and an opportunity for interested borrowers with such active force-placed insurance policies to obtain an expedited review of their insurance situation, excluding those borrowers with an active wind or hazard force-placed insurance policy effective on or before November 1, 2016.”

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