Ocwen Takes It on the Chin

Posted by kevin on December 24, 2014 under Foreclosure Blog | Comments are off for this article

MHA (Making Home’s Affordable) was set up by the government to induce lender’s to make deals with borrowers whether it be mortgage modification, dealing with second mortgages, short sales, deeds in lieu.

Oh excuse me, MHA may be about modifications, short sales and the like, but the inducement is not to the lender but the servicers. Not the guy that owns the mortgage, but the bean counter who collects the payments and sends them to the appropriate party.

What’s the big deal? Well, in defending foreclosure cases for the last 5 years, and reading pooling and servicing agreements, I have concluded that the interests of the servicer is many times in conflict with the interests of lenders or investors in securitized trusts. Investors and lenders usually fare better if they can work out a deal with the borrower. Servicers, on the other hand, seem to do better if there is a foreclosure.

That is why I was not too surprised to read the numerous stories about Ocwen getting hammered by the New York Superintendent of Financial Servicers. As part of the 150 million dollar settlement, William Erbay, the founder of Ocwen, is being forced out as CEO. Ocwen must come up with one hundred million in foreclosure relief and fifty million is going to be paid to Ocwen customers in NY. Do we have any governmental agency in NJ that protects borrowers? Heaven forbid. Moreover, Ocwen’s operations are to be monitored by an independent monitor for two years. Stock prices have fallen by 30% in that last week. Moreover, a $39 billion deal with Wells Fargo may be down the crapper.

What did Ocwen do? Basically, what most servicers do; that is, jerk around borrowers. However, Ocwen did it on a scale that made other servicers look like the JV (stealing a term from the Prez). For example, complaints against Ocwen were two times more frequent than complaints against BOA and 5 to 6 times more frequent than complaints against Wells Fargo. ( I have dealt with BOA and WF, and they are not what I would call “user friendly”).

Ocwen ran up costs by farming work out to affiliates which had strong ties to Ocwen and its executives. They backdated letters to borrowers which made it look like they were responding in accord with regulations under Dodd-Frank. According to Richard Cordray, the head of the CPFB, Ocwen took advantage of borrowers at every stage of the process. Another strategy attributed to Ocwen is that they would accept a package of documents and information from a borrower, wait 29 days, and then, instead of deeming the package complete for review by underwriter, Ocwen would send a deficiency letter to the borrower and request updates. What was not in the articles, but what I fear happened, was that Ocwen used the incomplete application as the basis for extracting additional monthly payments out of the borrowers during the so-called trial period. If you were to cross-check those payments against the servicing agreement, I would not be surprised to find out that the servicer kept a portion (if not all) of those payments.

Ocwen is not only servicer that plays games, but they got nailed. I would not be surprised if other servicers wind up on the wrong side of regulators in the future.

Merry Christmas.