The Consumer Financial Protection Bureau (CFPB) is suing Ocwen Financial Corp. and its subsidiaries for “failing borrowers at every stage of the mortgage servicing process”; however, the bureau has not yet announced any fines and, so far, is only requiring Ocwen to address the alleged problems with its servicing practices.
It’s unclear from the CFPB’s complaint exactly when the alleged violations took place, but it appears to be from around 2010 up until around 2014. The bureau alleges that “years of widespread errors, shortcuts and runarounds” on behalf of the servicer “cost some borrowers money and others their homes.”
The bureau alleges Ocwen “botched basic functions like sending accurate monthly statements, properly crediting payments, and handling taxes and insurance.” It also alleges the servicer “illegally foreclosed on struggling borrowers, ignored customer complaints and sold off the servicing rights to loans without fully disclosing the mistakes it made in borrowers’ records.”
The Florida Attorney General has taken a similar action against Ocwen in a separate lawsuit, and “many state financial regulators are also independently issuing cease-and-desist and license revocation orders against Ocwen for escrow management and licensing issues,” the CFPB says in a release.
Ocwen is accused of “significant and systemic misconduct at nearly every stage of the mortgage servicing process,” including the use of “error-riddled information,” the CFPB says.
Specifically, the servicer is accused of loading erroneous or incomplete borrower and loan information into its core servicing system, which resulted in errors. In addition, it is accused of failing to properly update and maintain its servicing platform, which “generated errors because of system failures and deficient programming.”
Ocwen tried manual work-arounds to address the deficiencies with its system, “but they often failed to correct inaccuracies and produced still more errors,” the CFPB says.
The bureau claims that in 2014, Ocwen’s head of servicing described its proprietary servicing system as “ridiculous” and a “train wreck.”
The CFPB is also accusing Ocwen of illegally foreclosing on at least 1,000 homeowners, mainly because it “failed to deliver required foreclosure protections.”
The bureau alleges that Ocwen “initiated the foreclosure process before completing a review of borrowers’ loss mitigation applications.” It also accuses the servicer of asking defaulted borrowers “to submit additional information within 30 days but foreclosed on the borrowers before the deadline.”
The servicer “also foreclosed on borrowers who were fulfilling their obligations under a loss mitigation agreement,” the bureau says.
The CFPB’s announcement lists a variety of other alleged failures, including failing to credit borrowers’ payments, botching escrow accounts, mishandling hazard insurance and bungling borrowers’ private mortgage insurance.
In a statement, Ocwen officials strongly dispute that the company’s servicing practices have caused substantial consumer harm.
“In fact, just the opposite is true,” Ocwen officials say, adding that the company’s servicing practices “have and continue to result in substantial benefits to consumers above and beyond other mortgage servicers.”
“The substantive allegations in today’s suit are inaccurate and unfounded,” officials say. “Indeed, the company is unaware of the CFPB conducting any detailed review of Ocwen’s loan servicing files. Rather, the CFPB suit is primarily based on the CFPB’s flawed review of data and its self-serving conclusion about isolated instances where Ocwen self-identified ways we can do better.
“Ocwen fully cooperated with the CFPB’s inquiries and sought to find a fair and reasonable solution to the extent the CFPB identified legitimate concerns,” company officials add. “Indeed, Ocwen continued to work with the CFPB until the suit was filed. Under these circumstances, Ocwen has a responsibility to its customers, shareholders and employees to vigorously defend the company against these unfounded claims.”
Company officials also point to third-party research showing that “a homeowner whose loan is serviced by Ocwen has a much better chance of avoiding foreclosure than if their loan is serviced by any other large mortgage servicer.”
This same research shows that “Ocwen has a superior record helping borrowers bring their payments current, stay current and repay their mortgage.” The firm handled roughly 20% of all of the loan modifications processed in the U.S. from 2008 to 2016.
The CFPB’s suit, however, ignores all of the successes Ocwen has had in handling distressed loans.
“This unreasonable action is an unfortunate example of overreaching by the CFPB,” Ocwen says in its statement. “Many of the issues raised in today’s suit, including those related to the company’s foreclosure policies and the effectiveness of its servicing system, were addressed by the National Mortgage Settlement, which the CFPB and Ocwen signed in December 2013.
“In addition, Ocwen believes the CFPB’s allegations concern only a small percentage of Ocwen’s 1.3 million customers, and Ocwen has repeatedly assured the CFPB that it will remediate, and in many instances already has remediated, any legal harm experienced by these customers,” officials add. “Given these facts, today’s suit can only be viewed as a politically motivated attempt by the CFPB to grab headlines in reaction to the change of administration and recent scrutiny of the CFPB’s activities.”
To read the full complaint, click here.