Ocwen begins settling with states to remove mortgage servicing restrictions

Consent orders reached with Illinois and Montana

Back in April, more than 20 states clamped business restrictions on Ocwen Financial for alleged rampant errors with homeowners’ escrow accounts and other mortgage servicing issues.

Many of the states took regulatory actions against Ocwen over the alleged escrow issues by restricting Ocwen’s ability to acquire new mortgage servicing rights and originate new loans.

At the time, Ocwen said that it intended to fight back against the state regulators’ accusations and business restrictions, taking the regulators in Massachusetts and Illinois to court to fight for its ability to operate within the states.

Now, five months later, Ocwen is beginning to dig its way out of from under those restrictions, but the company isn’t getting away clean.

On Thursday, the states of Illinois and Montana separately announced that each state reached a consent agreement with Ocwen, which removes some of restrictions on Ocwen’s business, but adds new restrictions as well.

At the core of each consent agreement is a stipulation that Ocwen move its servicing off of the REALServicing platform, its proprietary servicing platform, which is used to process and apply borrower payments, communicate payment information to borrowers, and maintain loan balance information.

The REALServicing platform was also at the center of the lawsuit from the Consumer Financial Projection Bureau, which accused the Ocwen of “failing borrowers at every stage of the mortgage servicing process.”

When the CFPB filed its lawsuit against Ocwen (on the same day as the state regulators levied their allegations), the CFPB said that in 2014, “Ocwen’s head of servicing described its system as ‘ridiculous’ and a ‘train wreck.’”

Now, Illinois and Montana are stipulating that Ocwen may no longer use the REALServicing platform.

In announcing the consent agreement, the Illinois Department of Financial and Professional Regulation, Division of Banking, said that its original investigation found errors in Ocwen’s servicing records maintained on the REALServicing platform, which resulted in “negative impacts, such as: incorrect or delayed updating of servicing information and payments by consumers; late payment or forced-placement of consumer’s property hazard insurance from escrow accounts; and improper handling of loan transfers in and out of REALServicing.”

The consent agreement with Illinois states that Ocwen has committed to develop a detailed plan of action that will transfer all Illinois residential mortgage loans currently on REALServicing to other servicing platforms, which should enable Ocwen to comply with applicable mortgage servicing standards.

The agreement with Illinois also allows Ocwen to resume originating mortgages in Illinois if those loans are boarded to servicing platforms other than REALServicing.

The agreement with Illinois also restricts Ocwen from boarding any new Illinois mortgages onto the REALServicing platform “at any time.”

The Illinois agreement also prohibits Ocwen from acquiring any Illinois residential mortgage servicing rights until April 30, 2018.

As part of the agreement, Ocwen also committed to employing an independent third-party auditor to “review a representative sample of escrowed loans on REALServicing serviced by Ocwen between January 1, 2013, and June 30, 2017.”

The agreement also requires Ocwen to provide a quarterly report to the Illinois Department of Financial and Professional Regulation on all Illinois consumer complaints made to Ocwen and the resolutions of those complaints, through the third quarter of 2019.

As for Montana, the state’s agreement with Ocwen stipulates that Ocwen has committed to transitioning their servicing portfolio off of REALServicing to a platform “better able” to manage escrow accounts and to establishing a new complaint resolution process.

The Montana agreement also requires Ocwen to hire a third-party firm to “audit a statistically significant number of escrow accounts in high-risk areas of the portfolio to determine whether problems continue to exist around the management of escrow accounts and to identify the root cause of those problems.”

Additionally, the Montana agreement requires “restitution for any customers identified during the escrow review process who have been harmed by the company’s failure to properly handle mortgage payments regardless of whether that harm is caused by a systemic issue or an individual error.”

According to the Montana Department of Administration Division of Banking & Financial Institutions, Ocwen serviced approximately 1,800 mortgages in Montana with a combined principal of over $225 million, as of June 30, 2017.

“I’m pleased we have reached this agreement with Ocwen,” DBFI Commissioner Melanie Hall said in a release. “The Consent Order allows both the Division and the company to move forward with a focus on what specific steps need to be taken in order to provide consumers with accurate processing of their mortgage payments and for improved customer service in the future.”

As of publication, those two states are the only ones to announce reaching a consent agreement with Ocwen, but if past precedent in this case is a predictor of its future, odds are there will be more agreements between Ocwen and states in the coming days.

[Update: On September 29, Ocwen announced that it reached consent agreements with 8 other states beyond Illinois and Montana. For details on that, click here.]

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