Ocwen Financial Corporation (NYSE: OCN) opened a second line of attack against its regulatory enemies Wednesday morning, filing motions that request an early decision in a court case that could declare the Consumer Financial Protection Bureau unconstitutional — and, in turn, invalidate a federal lawsuit that the CFPB filed against Ocwen last week.
After submitting motions for restraining orders against state-level cease-and-desist orders in Massachusetts and Illinois yesterday, the West Palm Beach, Fla.-based firm set its sights on the federal government today, seeking a court ruling that would declare the CFPB to be unconstitutional.
Ocwen’s motions have some precedent. Back in October, in the case of PHH Corp. v. Consumer Financial Protection Bureau, three judges on the D.C. Circuit Court of Appeals ruled that the CFPB — an independent federal bureau created in the wake of the financial criss and recession in 2010 — had an unconstitutional structure, citing the president’s inability to fire its director, as well as the general unchecked power of the position.
Many Republicans have called for the ouster of current CFPB director Richard Cordray, but despite controlling the White House, their hands are tied: As the Boston Globe pointed out, the director — and ally of progressive Massachusetts Sen. Elizabeth Warren, who helped form the CFPB — can’t be removed until his term elapses in 2018 unless President Trump can illustrate that Cordray exhibited “inefficiency, neglect of duty, or malfeasance” in office.
According to the National Law Review, the D.C. Circuit is set to rehear the PHH v. CFPB case on May 24, but an even earlier ruling could pay serious dividends for Ocwen. The beleaguered company faces a federal lawsuit in which the CFPB alleges rampant problems in its mortgage servicing operations, including the improper handling of escrow accounts, illegal foreclosures, and shoddy record-keeping. Were a court to deem the CFPB to be unconstitutional, Ocwen says, the case should rightfully be thrown out.
“Ocwen seeks to get this issue resolved early, because it should be relieved of having to defend this unfair action from an unconstitutional agency,” an Ocwen release announcing the actions reads.
Ocwen contends that the CFPB’s suit illustrates the constitutional issues at play, claiming that the bureau included a raft of old allegations that the servicer had already addressed, and also failed to carefully review the servicing files at the heart of its claims.
The servicing giant promised further action against the remaining states that filed cease-and-desist orders in the coming weeks. Ocwen services and originates reverse mortgages through its Liberty Home Equity Solutions entity; so far, based on contacts with the state departments of banking involved in the actions and a partial review of the motions, only Illinois specifically mentioned Liberty, halting the firm’s ability to originate reverse mortgages or acquire new reverse mortgage servicing rights in the state. RMD will update this information as it becomes available.
Ocwen’s stock, which had taken a precipitous tumble in the wake of the actions last week, crept up slightly on the news, landing on Seeking Alpha’s list of top premarket gainers; at 9:05 a.m. Eastern, OCN was up 6%.
Written by Alex Spanko