Ocwen Financial Corporation (NYSE: OCN) admitted in an SEC filing that its internal reporting systems were “not effective” in the months leading up to a multi-state tsunami of regulatory actions, and conceded that any eventual resolution could prove costly.
The West Palm Beach, Fla.-based Ocwen filed an amended 2016 annual report late Monday, adding language that addresses the company’s failure to mention a memorandum of understanding it had signed with the Multistate Mortgage Committee, a consortium of six states whose investigation into Ocwen’s escrow accounts eventually led to the tidal wave of regulatory actions.
“Management has concluded that Ocwen’s disclosure controls and procedures, and internal controls over financial reporting, were not effective as of December 31, 2016, solely due to a material weakness in internal controls over financial reporting that resulted in the failure to provide disclosure of the MOU,” the filing reads.
Ocwen entered into an agreement with the committee in December 2016, promising to perform a full audit of all of its escrow accounts after the states allegedly found a raft of issues, such as missing tax and insurance payments and sending consumers “inaccurate, confusing, and/or misleading” statements about their escrow accounts.
Ocwen then claimed that performing a full audit on its 2.5 million escrow accounts would be financially prohibitive, and instead offered to have an auditor inspect a representative sample of 457 accounts. The committee found this unsatisfactory, and the group of jurisdictions pounced with cease-and-desist orders.
According to Monday’s filing, Ocwen still isn’t interested in completing a all-encompassing audit; instead, the company claims to be working with the committee to arrive at a compromise solution in which it would audit a “statistically based sample population” of the states’ choosing, as well as more “targeted” analyses of accounts associated with specific loan types.
As for the other states, Ocwen said it’s working with representatives from each jurisdiction to reach a solution, and has entered into agreements with some of the states to delay the cease-and-desist actions. In the filing, the company claimed to have completely halted originations in two states, while also working to “release servicing on new originations” in “certain” states. The filing also upped the number of states involved in the ongoing actions from 21 and D.C. to 30. The filing did not specify the names of these states in the filing, and a spokesman for Ocwen was not available as of press time.
RMD reported last month that Ocwen had filed emergency restraining orders against Illinois and Massachusetts — the latter of which is attempting to force Ocwen to transfer all of its existing servicing portfolio to other companies.
Ocwen said it would provide details about planned changes to its reporting practices in its next quarterly report, due June 30.
“The company is evaluating the necessary changes to its controls to remediate this weakness,” the company said.
Ocwen hinted that the end of this saga won’t come without a hefty price tag.
“It is possible that the outcome of these state regulatory actions, whether through negotiated settlements or other resolutions, could be materially adverse to our business, reputation, financial condition, liquidity, and results of operations,” the company noted in the filing. “We cannot currently estimate the amount, if any, of reasonably possible loss related to these matters.”
Ocwen originates and services reverse mortgages under its Liberty Home Equity Solutions; as RMD reported last month, the cease-and-desist orders were not related to the company’s Home Equity Conversion Mortgage operations.
Written by Alex Spanko