Companies that operate two major reverse mortgage servicers had an interesting holiday weekend, with one forced to admit that its most recent annual report was based on bad accounting, and the other claiming a state-appointed monitor wasted its money at strip clubs and casinos.
The latter charge comes from an unusually scandalous lawsuit filed earlier this month by Ocwen Financial Corporation (NYSE: OCN). Back in 2015, the servicer — which handles reverse mortgages through its Liberty Home Equity Solutions subsidiary — agreed to a $2.5 million settlement with California over accusations that Ocwen didn’t produce paperwork related to the state’s Homeowners Bill of Rights. Under the deal, Ocwen also submitted to the oversight of a third-party auditor for at least two years, with Fidelity Information Services, LLC (FIS) eventually winning the gig.
Ocwen ponied up $44.8 million to cover the costs of the monitoring services, including the proposed review of more than 50,000 loan files, but the West Palm Beach, Fla.-based servicer claims the money went to decidedly less professional pursuits: FIS employees used Ocwen’s cash to pay for the aforementioned adult entertainment, along with personal purchases of liquor and groceries, according to the filing, which Ocwen spokesperson John Lovallo provided to Reverse Mortgage Daily.
“As a direct result of FIS’s fraudulent charges and artificially inflated invoices, FIS ran through the $44.8 million budget for the entire two-year review in just 11 months, while delivering less than half of the work it was hired to do,” the filing reads. “FIS was on pace to charge Ocwen $120 million — nearly triple the project budget.”
Ocwen lists a host of specific examples, including FIS employees “watching videos on company time,” leaving offices without clocking out, billing the equivalent of more than 13 hours per day, and inflating mileage figures. The filing also accuses FIS employees of submitting expense reports peppered with names like Harrah’s Casino, WinStar World Casino, and the Spearmint Rhino Gentleman’s Club.
“On information and belief, FIS’s policies prohibit expensing meals at these types of establishments,” the filing reads, going on to claim that the Jacksonville, Fla.-based auditor went ahead and approved the expenses anyway.
In a statement to HousingWire, FIS flatly denied the accusations; according to Ocwen’s lawsuit, California authorities terminated FIS’s monitoring contract in February as part of a new consent order.
“Our complaint speaks for itself,” Lovallo said in a statement.
Ocwen’s strike against FIS is the latest in a line of retaliation against regulators on both the state and federal levels: As RMD has extensively reported, the servicer has found itself in hot water with a multitude of state agencies and the Consumer Financial Protection Bureau over its practices, which Ocwen continues to defend. The servicer has also sought emergency restraining orders against some of the states seeking to suspend its ability to acquire new mortgage servicing rights, and filed motions asking for an expedited ruling on the CFPB’s very constitutionality, claiming the bureau had no authority to sue.
Walter’s fuzzy math
Walter Investment Management Corporation (NYSE: WAC), meanwhile, was forced to admit in an 8-K filing that an accounting error rendered its 2016 annual report unreliable. After consulting with accounting partner Ernst & Young, Walter — which services reverse mortgages through its Reverse Mortgage Solutions arm — found a double-count in its valuation allowances related to tax asset balances, the servicer said. As a result, its last annual report, along with its most recent three quarterly reports, “should no longer be relied upon.”
“The company’s internal controls over financial reporting and disclosure controls and procedures were ineffective,” Walter wrote in its filing. “Further details and remediation plans will be reflected in the amended filings.”
Walter promised to issue those amended financial reports as quickly as possible, but the damage to the Fort Washington, Pa.-based firm’s stock was already done: WAC stock had fallen 12% before trading began Tuesday morning after the long holiday weekend, and finished the day at $1.12 — after closing May 26 at $1.41 per share.
Written by Alex Spanko