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Ocwen, Barred from Reverse Mortgage Originations in IL, Strikes Back

Faced with a wave of enforcement actions from 21 states, the District of Columbia, and the federal government last week, nationwide mortgage servicer Ocwen Financial Corporation (NYSE: OCN) on Tuesday struck back, filing motions for emergency restraining orders against actions taken by the states of Illinois and Massachusetts.

Massachusetts levied perhaps the strictest penalties on the West Palm Beach, Fla.-based Ocwen: Like the majority of the other 22 state actions filed last Friday, the Massachusetts action temporarily suspends the company’s ability to originate loans and acquire new mortgage servicing rights in the Bay State. But unlike the other orders — including those from Illinois, North Carolina, and Wisconsin — the Massachusetts Division of Banks took the additional step of requiring Ocwen to relinquish existing mortgage servicing rights within the state.

“The Order requires Ocwen to develop and implement a plan to transfer its loan servicing activities for Massachusetts consumer mortgage loans to a Division-approved licensed loan servicer(s),” the text of the order reads. “The Order also requires Ocwen to either fund or place mortgage loan applications in process with other lenders at no loss to applicants, and to cease accepting new applications.”

Reverse Implications Unclear

The effect on Ocwen’s reverse mortgage origination and servicing arm, Liberty Home Equity Solutions, remains cloudy. Illinois’ order, for instance, specifically mentions Liberty by name, along with Ocwen Loan Servicing and Homeward Residential, Inc., a subsidiary that both services and originates “forward” mortgages. As a result, all three entities are prevented from originating new loans or acquiring servicing rights until they provide detailed financial reports, including all liabilities, and a full reconciliation of escrow accounts.

The Massachusetts order, meanwhile, only mentions Ocwen Loan Servicing, LLC. Chris Goetcheus, director of communications at the state’s Office of Consumer Affairs and Business Regulation, confirmed in e-mail to RMD that the state’s cease-and-desist does not apply to Liberty.

As of April 20, Ocwen’s servicing portfolio in Massachusetts consists of 34,472 loans, according to the state, or 3.5% of the company’s total slate.

Ocwen’s motions focus on the potential hardships that these actions would cause to consumers, noting that the freeze on its operations could potentially harm consumers that have pending applications or who wish to modify their existing Ocwen loans.

“Under these circumstances, Ocwen has a responsibility to its customers, shareholders, and employees to vigorously defend the company,” the company said in a press release issued Tuesday.

Multiple requests for further comment from Liberty’s internal marketing department, as well as a third-party spokesman for Ocwen, were not returned as of press time.

Multi-State Investigation Led to Actions

The release also claims that the issues raised by Massachusetts and Illinois are outdated, stemming from a multi-state investigation into Ocwen’s operations from January 2013 to February 2015.

That inquiry from the Multi-State Mortgage Committee — consisting of investigators from Florida, Maryland, Massachusetts, Mississippi, Montana, and Washington — directly led to Ocwen’s very bad April 20. The committee found that Ocwen mishandled escrow payments, improperly withholding funds from some borrowers and failing to make timely tax and insurance payments on behalf of consumers. In addition, the committee alleged that the company violated the terms of a 2016 memorandum of understanding when it submitted financial projections that did not include its liabilities — which, the North Carolina Commissioner of Banks claimed, would have revealed that “Ocwen continuing as a going concern would be in doubt.”

The Conference of State Bank Supervisors cited the escrow-related revelations when announcing that 21 states and D.C. had taken restrictive actions against Ocwen, the majority of which will prevent the company from acquiring new mortgage servicing rights until management can prove it has its escrow house in order.

In a completely separate action last Friday, the Consumer Financial Protection Bureau filed a federal lawsuit against Ocwen over a host of alleged violations, including the escrow issues, improper foreclosures, and systemic problems with its in-house servicing software — which, according to the CFPB, Ocwen’s head of servicing deemed “ridiculous” and a “train wreck” back in 2014.

Ocwen’s release promised further appeals or responses to each of the orders “in the coming days.”

“In the meantime, Ocwen remains committed to working with Illinois, Massachusetts, and the other state regulators to resolve any valid concerns,” the release said.

According to an exhaustive breakdown of each state’s actions against Ocwen over at HousingWire, Montana and South Dakota officials additionally ordered the suspension of all Ocwen-related foreclosures in their states, while the vast majority of remaining states simply enacted temporary suspensions of originations and the acquisition of mortgage servicing rights. HousingWire’s compilation found that only Illinois mentioned Liberty Home Equity Solutions in its release announcing the actions.

Written by Alex Spanko