By K.K. MacKinstry
20 states issued Cease-and-Desist orders against Ocwen Financial Corporation today and a lawsuit from the Consumer Financial Protection Bureau followed shortly thereafter. Mortgage regulators cited mismanagement of escrow accounts and poor financial conditions as reasons for the orders.
Ocwen, a Florida-based company, was instructed not to acquire any new mortgage servicing rights and residential mortgages until it can demonstrate its financial stability through an audit of liabilities as well as justify its collection and calculation procedures regarding customer funds.
The action is a result of a six-state examination of Ocwen conducted between 2013 and 2015, which revealed irreconcilable consumer escrow accounts, unlicensed servicing activity and “significantly deteriorating” financial conditions among other irregularities.
North Carolina filed a regulatory brief that said the states had repeatedly confronted Ocwen’s Board that the ongoing violations “were unacceptable and would not be tolerated.”
Ocwen failed to provide the requested financial documents, which triggered the firm and regulators to enter into a Memorandum of Understanding (MOU) requiring Ocwen to submit a business plan that would address consumer grievances and the hiring of an independent auditor to review finances. Despite that activity in 2016, regulators discovered Ocwen continued to operate outside regulations.
“Ocwen has engaged in, is engaging in, or is about to engage in acts or practices which warrant the belief that the company is not operating honestly, fairly, soundly, and efficiently in the public interest, and/or in violation of standards governing the licensing and conduct of a mortgage loan servicer,” the North Carolina filing states. “The public interest will be irreparably harmed by delay in issuing a cease and desist order to Ocwen.”
Ocwen shares were trading down 55.2 percent to $2.46 when the markets closed.
Ocwen released a statement around 2:30 pm Eastern today that said:
“Ocwen strongly disputes the CFPB’s claim that Ocwen’s mortgage loan servicing practices have caused substantial consumer harm. In fact, just the opposite is true. Ocwen believes its mortgage loan servicing practices have and continue to result in substantial benefits to consumers above and beyond other mortgage servicers. The substantive allegations in today’s suit are inaccurate and unfounded. Indeed, the Company is unaware of the CFPB conducting any detailed review of Ocwen’s loan servicing files. Rather, the CFPB suit is primarily based on the CFPB’s flawed review of data and its self-serving conclusion about isolated instances where Ocwen self-identified ways we can do better.”
“Ocwen fully cooperated with the CFPB’s inquiries, and sought to find a fair and reasonable solution to the extent the CFPB identified legitimate concerns. Indeed, Ocwen continued to work with the CFPB until the suit was filed. Under these circumstances, Ocwen has a responsibility to its customers, shareholders, and employees to vigorously defend the Company against these unfounded claims.”
Sub-prime mortgage servicer Ocwen Financial is under an order that prohibits the acquisition of new mortgage servicing rights and the origination of mortgage loans by Ocwen Loan Servicing.
Here are the summary findings from the C&D (link)
The Commissioner of Banks (“Commissioner”) having determined that Ocwen Financial Corporation has engaged in, or is engaging in, or is about to engage in, acts or practices constituting violations of state and federal law and applicable regulations, hereby issues the following FINDINGS OF FACT and ORDER TO CEASE AND DESIST.
And some further details:
During the audit, the Examining States identified several violations of state and federal law, including consumer escrow accounts that could not be reconciled and willful and ongoing unlicensed activity in certain states. Additionally, it was determined that Ocwen’s financial condition was significantly deteriorating as we have reported over the last year.
Although the Examining States were unable to gather comprehensive documentation of the extent of unlicensed activity because Ocwen’s management failed to respond to requests for information in a timely manner, the examination found that Ocwen subsidiaries were conducting unlicensed servicing activity in numerous jurisdictions.
The examination found that Ocwen has been unable to accurately reconcile many of the consumer escrow accounts in its portfolio. Consumer escrow accounts are accounts that contain consumer funds held for the payment of taxes and insurance. The examination further found that Ocwen failed to make timely disbursements to pay for taxes and insurance from escrow accounts on numerous loans and that Ocwen routinely sent consumers inaccurate, confusing, and/or misleading escrow statements.
In 2015, Ocwen failed to provide key financial documents and reconcilements of its financial statements to regulators.
The MOU required Ocwen to retain an independent auditing firm to perform a comprehensive audit and reconciliation of all consumer escrow accounts, with a report to be furnished by the Auditor to Ocwen and the MMC within five business days thereafter. The audit plan was to be submitted to, and approved by, the MMC no later than January 13, 2017.
Ocwen’s response to the state regulators on January 13, 2017, was that the reconciliation of escrow accounts, which is paramount in ensuring the appropriate management of consumer funds, would cost $1.5 billion and be well beyond Ocwen’s financial capacity to fund. Ocwen has suggested instead that a sample of 457 escrow accounts be reconciled out of 2.5 million active first lien escrow accounts that Ocwen has serviced since January 2013. This proposal could leave a vast number of consumers with unaudited and inaccurate escrow accounts.
The company is currently facing numerous substantiated consumer complaints regarding escrow accounts that have been mismanaged, resulting in significant harm to consumers, and request for reimbursement of monies wrongfully withheld or misapplied. LendingLies has several Ocwen clients that have been unable to obtain copies of notes, have discovered forged assignments and where Ocwen is unable to provide the name of the holder in due course or actual creditor. As of last week, Ocwen cancelled a foreclosure sale of a Texas client that will not be rescheduled until February 2018. We thought it was odd that the sale would be prolonged for such a long period of time if Ocwen does in fact have standing to proceed.
Ocwen’s going forward plan submitted in response to the MOU did not provide a complete assessment of its financial condition because it excluded significant liabilities. If Ocwen’s plan accurately accounted for known or anticipated regulatory penalties and other operational costs, including, but not limited to, the expenses of moving to a new servicing platform and complete reconciliation of consumer escrow accounts with restitution to impacted borrowers, it would indicate that Ocwen’s ability to survive is in jeapordy.
The stock is plunging on the news that its business model may be terminally impaired.
In addition to D.C., the following states participated in today’s actions, according to the organization: Arkansas, Connecticut, Florida, Hawaii, Idaho, Illinois, Maine, Massachusetts, Mississippi, Montana, Nebraska, Nevada, North Carolina, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, West Virginia, Wisconsin, and Wyoming.
We encourage Livinglies readers who have loans serviced by Ocwen to reach out to the regulators, state attorney generals and CFPB and lodge complaints.