Ocwen Financial Corporation (NYSE: OCN) on Thursday announced that has reached a $56 million settlement over a federal class-action lawsuit, the latest in a line of issues for the troubled servicer.
The lawsuit stemmed from alleged problems with restatements in Ocwen’s 2013 and 2014 financial statements, as well as a 2014 consent decree from the New York State Department of Financial Services that prohibited the company from gaining additional mortgage servicing rights in the state.
The West Palm Beach, Fla.-based Ocwen originates and services reverse mortgages under its Liberty Home Equity Solutions subsidiary.
“While the company believes that it has sound legal and factual defenses, Ocwen agreed to this settlement in order to avoid the uncertain outcome of the trial and the additional expense and demands on the time of its senior management,” the company wrote in an 8-K filing.
The settlement includes $49 million in cash for the plaintiffs, along with an additional 2.5 million shares of Ocwen stock that the company pegged at about $7 million; under the terms of the agreement, the servicer can also elect to simply pay the additional amount in cash.
After insurance covers a portion of the outlay, Ocwen will end up taking a financial hit of $34 million to $36 million, which the company intends to record in the second quarter of 2017. Ocwen warned that that the decision isn’t final and remains subject to a judge’s approval.
“In the event the settlement in principle is not ultimately finalized and approved, the litigation would continue and we would vigorously defend the allegations made against Ocwen,” the company wrote.
Back in March, Ocwen made a major move to extract itself from the terms of the 2014 New York order, reaching a deal with the Empire State to remove a mandatory third-party monitor and create a potential pathway to begin acquiring servicing rights once more. The state had forced Ocwen to pay $150 million in fines stemming from record-keeping failures and improperly handled foreclosures as part of the consent order.
But Thursday’s settlement announcement still marks the most recent step in Ocwen’s regulatory woes, which remain ongoing on several fronts: The servicer must currently contend with a lawsuit from the Consumer Financial Protection Bureau and cease-and-desist orders from up to 30 states that bar Ocwen from gaining new mortgage servicing rights. Those orders generally did not affect Liberty’s operations, as RMD reported at the time.
Ocwen had attempted to shed the CFPB lawsuit by requesting an immediate ruling on the bureau’s constitutional authority, but in June a judge rejected that argument. Based on these challenges, Moody’s downgraded company’s outlook and projected more woes to come.
“The negative outlook reflects the expectation that Ocwen will continue to experience elevated legal and regulatory costs that negatively impact its profitability,” Moody’s wrote in its release announcing the downgrades.
Written by Alex Spanko