Ocwen’s Bad Day: CFPB Lawsuit, 20+ State Regulatory Orders

It’s been a decidedly rough afternoon for Ocwen Mortgage Servicing, Inc. (NYSE: OCN), as the multistate servicer was hit with a federal lawsuit from the Consumer Financial Protection Bureau — and, in separate actions, lost its ability to gain new mortgage servicing rights in more than 20 states*, including North Carolina and Wisconsin.

The CFPB’s lawsuit alleges a host of violations, including illegally foreclosing on 1,000 borrowers, mishandling escrow accounts, enrolling consumers in add-on programs without their consent, and knowingly populating its mortgage-tracking software with incorrect or incomplete information.

“We allege that these violations of the law were significant and systemic, and that they harmed thousands of consumers,” CFPB director Richard Cordray said on a conference call this afternoon.

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The West Palm Beach, Fla.-based firm originates and services reverse mortgages under its Liberty Home Equity Solutions entity. While the CFPB’s release doesn’t mention Home Equity Conversion Mortgages by name, the bureau claims that Ocwen failed to provide proper information to the heirs of certain borrowers.

“Ocwen failed to properly recognize individuals as heirs, and thereby denied assistance to help avoid foreclosure,” the CFPB claims. “In some instances, Ocwen foreclosed on individuals who may have been eligible to save these homes through a loan modification or other loss mitigation option.”

In completely separate moves, Ocwen came under fire from multiple states across the country. For instance, the state of North Carolina today slapped Ocwen with a cease-and-desist letter that will indefinitely prevent it from acquiring new mortgage servicing rights in the state, as well as originating mortgages that it plans to service. According to a release from the state of Wisconsin, more than 20 states issued regulatory orders or charges against Ocwen today, with the majority taking the form of similar cease-and-desist orders.

The North Carolina letter comes as part of a multi-state investigation into Ocwen’s handling of tax-and-insurance escrow accounts, including the alleged failure to make timely payments from the accounts and the improper withholding of money from borrowers. The Multi-State Mortgage Committee — consisting of Florida, Maryland, Massachusetts, Mississippi, Montana, and Washington — tracked Ocwen’s operations from 2013 to 2015. While not a member, North Carolina examined the committee’s findings as part of its routine regulatory operations.

According to the order issued by the North Carolina Commissioner of Banks, the  West Palm Beach, Fla.-based Ocwen entered a memorandum of understanding with the states last December, which required the servicer to perform a complete reconciliation of its escrow accounts. Ocwen demurred, claiming that it would cost a prohibitive $1.5 billion to perform a comprehensive audit. Instead, Ocwen suggested that the state use a representative sample of 457 accounts out of more than 2.5 million — a proposal that the committee rejected.

In addition, Ocwen was required to furnish the committee with a detailed financial health projection for the coming years. Instead, the Tar Heel State claims, Ocwen submitted a plan that didn’t include any of its liabilities, such as “known and anticipated” regulatory penalties and the implementation of a new servicing platform.

In perhaps the most damning passage, the Commissioner of Banks claims that if the servicer were to include these liabilities, “it would indicate that Ocwen continuing as a going concern would be in doubt.”

North Carolina’s order will remain in effect until Ocwen turns over a complete reconciliation of its escrow accounts “showing that consumer funds are appropriately collected, property calculated, and disbursed accurately and timely.”

Ocwen issued a statement shortly after the 2 p.m. EDT conference call, vowing to “vigorously defend itself” against the charges and disputing the CFPB’s assertions that its operations are fundamentally flawed.

“Ocwen believes its mortgage loan servicing practices have and continue to result in substantial benefits to consumers above and beyond other mortgage servicers,” its statement reads. “The substantive allegations in today’s suit are inaccurate and unfounded.”

The firm further claims that it has worked closely with the CFPB to help resolve what it called “legitimate concerns,” a collaboration that’s now been threatened by this lawsuit.

“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 said.

The Florida attorney general was expected to file a lawsuit against Ocwen today as well, according to CFPB officials on the conference call, and multiple more states have issued or were about to enact cease-and-desist orders, CFPB officials said. Ocwen would only acknowledge that it “received various orders from state mortgage regulators.”

“We will respond promptly to all of the matters raised after a full review. We believe we are properly licensed in all of the states where we conduct business,” the statement read.

The news represents a major setback for Ocwen, whose fortunes seemed to be on the upswing just a few weeks ago. Back in March, the servicer announced that it was freed from the thumb of a mandated third-party monitor in the state of New York, one of the requirements of a $150 million settlement the company reached over foreclosure errors and record-keeping failures. While the firm was still barred from acquiring new mortgage servicing rights in the Empire State as part of that agreement, management indicated in an 8-K that the removal of the monitor represented a major step toward lifting that ban.

Ocwen took a beating on Wall Street in the wake of the news, with its stock plummeting nearly 60% in the immediate aftermath. OCN closed trading on Thursday at $2.49 per share, a drop of about 54% from its open of $5.46.

UPDATE, 7:25 p.m. CDT: The Conference of State Bank Supervisors released a statement confirming that 21 states and the District of Columbia filed actions against Ocwen today. The majority of the actions involved the complete banning of originations, as well as the acquisition of new mortgage servicing rights, until Ocwen can prove it can handle escrow accounts effectively, the organization said.

“This multi-state effort is a testament to the states’ ability to regulate large companies across the country while ensuring compliance with applicable state and federal law, and protecting consumers,” John W. Ryan, the conference’s president and CEO, said in the statement. 

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.

Written by Alex Spanko