A report from Duff & Phelps, a global corporate valuation and financial advisory firm, refutes claims made in a lawsuit brought by a group of investors in Ocwen Financial Corp. that the mortgage servicer failed to properly collect payments on $82 billion of home loans.
The lawsuit, filed in January 2015 by law firm Gibbs & Bruns on behalf of investors that reportedly include BlackRock, MetLife and Pimco, states that a lengthy investigation and analysis by “independent, highly qualified experts” determined that Ocwen had “failed to perform, in material respects, its contractual obligations as servicer and/or master servicer.”
The group of investors sent a notice of nonperformance to Ocwen and the trustees for 119 residential mortgage-backed securities trusts that same month, asserting that Ocwen broke its agreements when it implemented “conflicted servicing practices that enriched Ocwen’s corporate affiliates, including Altisource Portfolio Solutions and Home Loan Servicing Solutions, to the detriment of the trusts, investors and borrowers,” according to a statement from the law firm at the time.
The lawsuit also accuses Ocwen of “engaging in imprudent and wholly improper loan modification, advancing, and advance recovery practices; [failing] to maintain adequate records, communicate effectively with borrowers or comply with applicable laws, including consumer protection and foreclosure laws; and [failing] to account for and remit accurately to the trusts cashflows from, and amounts realized on, trust-owned mortgages.”
The investors also accuse Ocwen of using trust funds to pay its required borrower relief obligations under a regulatory settlement “through implementation of modifications on trust-owned mortgages that have shifted the costs of the settlement to the trusts and enriched Ocwen unjustly.” The investors further allege that trusts serviced by Ocwen have performed materially worse than trusts serviced by other servicers due to the firm’s “imprudent and improper servicing practices” and that it has proof of this via an analysis performed by experts.
Immediately after the lawsuit was filed, Ocwen Attorney Richard A. Jacobsen issued a statement that “these are essentially the same baseless allegations that [investors] have already asserted … in their failed attempt to block the transfer of servicing from OneWest to Ocwen.”
“As you know, those claims were thoroughly reviewed by an independent expert firm retained by the trustees, and after reviewing that expert report, the trustees cleared the transfer to Ocwen,” Jacobsen wrote in the Jan. 26, 2015, letter to Kathy Patrick, a lawyer with Gibbs & Bruns. “The allegations are as groundless now as they were then.”
Things got ugly quickly after the investor suit was filed, when Jacobsen accused the investors of running a national “pro-foreclosure” campaign.
“We note that your clients’ ill-conceived effort to push foreclosures and stop principal reduction is not directly solely at Ocwen but is part of their ongoing industry-wide, pro-foreclosure campaign, which has been roundly criticized by numerous national housing, consumer protection and civil rights groups as anti-consumer and contrary to good public policy,” Jacobsen wrote in his letter to Patrick.
The report from Duff & Phelps basically refutes all of the investors’ claims. The firm says that through its investigation, it found no evidence that Ocwen failed to account for P&I payments to the master serviced trusts nor was there any evidence that Ocwen charged the master serviced trusts for any undisclosed or “mysterious” expenses, as investors alleged.
The Duff & Phelps investigation also failed to turn up any evidence that Ocwen made negative net-present value modifications in order to maximize servicing fees and prematurely recoup advances – nor did it find evidence that Ocwen engaged in modifications in order to prematurely recover advances at the time of modification.
The firm adds that it could not find any evidence to conclude generally that Ocwen made extreme and imprudent modifications.
“We are pleased with the results of Duff & Phelps’ yearlong independent review,” says Ron Faris, president and CEO of Ocwen, in a statement. “We continue to focus on servicing loans in the best interest of loan investors and on being a leader in helping homeowners.”