Ocwen Financial Corporation (NYSE: OCN) continues to draw heat from federal regulators. This time, it’s the Monitor of the National Mortgage Settlement (NMS).
The parent of Liberty Home Equity Solutions is working closely with the Office of Mortgage Settlement Oversight (OSMO) on two issues identified earlier this year regarding its servicing compliance, and also covered in a report released Tuesday by NMS Monitor Joseph A. Smith, Jr.
NMS’s report, which covered the first six months of 2014—the fourth OSMO report on mortgage servicers’ compliance with the NMS—discloses two items that prevented the Monitor from reporting on Ocwen’s progress for the first half of 2014.
The first issue concerns processes used by Ocwen’s NMS Internal Review Group (IRG), which is responsible for reporting on the company’s compliance with the NMS.
In May, an employee of the company contacted Smith through the Monitoring Committee, alleging serious deficiencies in the IRG process, thus calling into question the IRG’s independence and the integrity of its operations.
Smith and the Monitoring Committee then launched an investigation, during which his team reviewed thousands of documents and interviewed nine Ocwen executives and employees. The Monitoring Committee is composed of representatives from 15 states, the U.S. Department of Housing and Urban Development and the U.S. Department of Justice.
“After my team and I reviewed numerous documents and interviewed several Ocwen personnel, I concluded that I could not rely on the work of Ocwen’s IRG for the first half of 2014,” Smith said in his report.
As a result, Smith authorized independent accounting firm McGladrey to retest Ocwen’s performance on a number of metrics. While this work is still ongoing, Smith says he will report on the company’s performance during this period once it is complete.
“The Monitoring Committee has been active and constructive in the monitoring process since the beginning of the NMS and I consulted with it during the course of my investigation into Ocwen’s practices,” Smith said.
The second issue identified in the NMS report concerns the letter dating issue raised by the New York Department of Financial Services in October, where the company had inadvertently misdated and sent letters to borrowers regarding foreclosure and loan modification.
Claims from New York DFS Superintendent Benjamin Lawsky alleged there were potentially hundreds of thousands of letters backdated 30 days from when borrowers received them.
“In many cases, borrowers received a letter denying a mortgage loan modification, and the letter was dated 30 more days prior to the date that Ocwen mailed the letter,” Lawsky wrote in a letter to Ocwen dated October 21. “These borrowers were given 30 days from the date of the denial letter to appeal that denial, but those 30 days had already elapsed by the time they received the backdated letter.”
In response, Ocwen has already taken steps to remediate the issue, including creating a master corrective action plan and establishing a claims process for borrowers potentially harmed by any misdated letters.
NMS again charged McGladrey with determining the scope of the issue, assessing the reliability of Ocwen’s systems and retesting relevant metrics.
Above all, Smith acknowledges that Ocwen has cooperated throughout the IRG and letter dating investigations and the ongoing work.
“We will continue to support the Monitor’s efforts to ensure that we are fully compliant with all aspects of the National Mortgage Settlement,” said Ocwen CEO Ronald Faris in a written statement. “We are committed to delivering best-in-class servicing as we work to help struggling borrowers keep their homes.”
To the extent the Monitory determines that Ocwen did not meet the minimum compliance standards mandated by the NMS in any period, the company said it will file a corrective action plan in accordance with NMS protocols.
Written by Jason Oliva