Too Little, Too Late Lawsuit Against Predatory Servicer Ocwen Demonstrates Failure to Address Servicing Abuses

So here it is, 2017, and finally we have a meaningful action against a predatory servicer, Ocwen. As we’ll discuss below, the Consumer Financial Services Protection Bureau said its suit alleged misconduct at every stage of Ocwen’s business. Ocwen’s stock fell 40% on the day.

Yet why has this taken so long? Ocwen was long known to be a particularly abusive servicer in a field rife with misconduct. New kid on the block Benjamin Lawsky, at the New York Department of Financial Services, went after Ocwen, alone, in 2014. As we wrote then:

New York State Superintendent of Financial Services Benjamin Lawsky has forced the resignation of the chairman and CEO of a mortgage servicer, Ocwen over a range of borrower abuses in violation of a previous settlement agreement, including wrongful foreclosures, excessive fees, robosigning, sending out back-dated letters, and maintaining inaccurate records. Lawsky slapped the servicer with other penalties, including $150 million of payments to homeowners and homeowner-assistance program, being subject to extensive oversight by a monitor, changes to the board, and being required to give past and present borrowers access to loan files for free. The latter will prove to be fertile ground for private lawsuits. In addition, the ex-chairman William Erbey, was ordered to quit his chairman post at four related companies over conflicts of interest.

The Ocwen consent order shows Lawksy yet again making good use of his office while other financial services industry regulators are too captured or craven to enforce the law. Unlike other bank settlements, investors saw the Ocwen consent order as serious punishment.

Mind you. abusive foreclosure practices were a major topic in 2010 and 2011, including banks foreclosing on people who didn’t have mortgages, telling borrowers to become delinquent to qualify for assistance programs like HAMP while having procedures almost certain to produce a foreclosure (like losing their paperwork pretty much all the time), not crediting payments so as to make borrowers late and impermissible foreclosures on active-duty servicemembers. Many of the horror stories were incredible, like banks foreclosing on borrowers of burned-down homes by virtue of refusing to accept settlements from insurers and a bank refusing to take a cash payment from a borrower in the branch who had done so for years, assuring a delinquency and eventual foreclosure.

The extent and severity of mortgage servicing misconduct was well known, yet the Obama administration threw its weight behind a “get out of liability nearly free” card in the form of a mortgage settlement that included a servicer settlement that Adam Levitin derided as the equivalent of scolding a child in public, then taking him inside and giving him hugs and kisses.

The reason nothing got better, particularly at Ocwen, was no accident.

Servicers cheat if they run into more than a trivial level of delinquencies. Mortgage servicing is unprofitable unless delinquencies are very low. Servicing is a standardized, high-volume, routinized business. Dealing properly with delinquent borrowers is high touch and costly. Again and again, servicers who experience more than a low level of delinquencies have violated their agreements with borrowers and investors to boost their profits. The most common way is to drive borrowers into foreclosure, since servicers are paid to foreclose, not to modify loans. And they also act against investors by charging excessive fees nominally against the borrower but that are ultimately charged against the investor, like overpriced and/or overly frequent “BPOs” (broker price opinions) which are required for delinquent borrowers.

The software and data underlying servicing is a mess. From 2011 onward, we wrote regularly as to how the underlying systems in these businesses were broken. That was confirmed in our Bank of America whistleblower series, where ultimately nine whistleblowers came forward to discuss the nature of abuses they saw during a botched effort to give wronged borrowers restitution via a program called the Independent Foreclosure Review. The program was shut down before completion as leaks exposed that it was serving, not surprisingly, as a cover up. From our overview:

The reviews confirm what both servicing experts and foreclosure defense attorneys have seen since the crisis: Bank of America’s servicing standards were poorly designed and thus unable to handle the deluge of troubled borrowers (suspense accounts, modifications, bankruptcy, etc.). In addition, BofA had a low level of competence in their servicing area and, as a result, the problems with their servicing was made worse. For instance, reviewers gave examples of types of behavior where Bank of America practices were clearly contrary to the law, yet the bank’s personnel confidently maintained that they were proper.

Note that this took place despite Countrywide, which Bank of America acquired, being widely recognized as having the best software platform in the industry. Yet the whistleblowers state that for some servicers that Bank of America acquired later, there was no data whatsoever in the servicing files. They could also see other signs of abuse, like failure to send out the initial delinquency notices at all or when they did, in a proper legal form (with all the required items included), along with an effort to create new records falsely showing the notice was properly made. Bear in mind these are just the abuses I recall readily.

The industry has refused to change the servicing model to pay for proper default servicing. The bad incentives, of servicers profiting from foreclosure but not for modifications or other efforts to prevent delinquencies, remain. Why? Better servicing would cost more, and thus is believed to increase the cost of borrowing and hence reduce “affordability”. I am not making that up.

No one has gone to jail. Again, this is arguably the most important reason nothing has changed much. Bank servicers stole homes, which are both the most important source of personal stability as well as the most important store of wealth for most households, particularly middle and lower income families. Yet Obama sided with the banks and was willing to help only “responsible” borrowers, which meant those who didn’t become delinquent. Let us not forget that it was the banks’ own “nearly destroy the global economy for fun and profit” exercise that led to the near-depression of late 2008 and 2009 which in turn produced job losses and work cutbacks, and also pushed many small businesses over the brink.

Notice a related idea that seems verboten in the US: if a business is a recidivist, and Ocwen certainly fits the bill, why are regulators unwilling to shut it down? Ocwen is not too big to fail and servicing rights are transferrable.

So while the CFPB suit against Ocwen sounds impressive by virtue of the scope of bad conduct it describes, and the fact that many other states are engaging in parallel cease and desist orders and license revocations, count me as underwhelmed.

Below are highlights from the CFPB’s press release, with the filing embedded at the end of the post.

The CFPB uncovered substantial evidence that Ocwen has engaged in significant and systemic misconduct at nearly every stage of the mortgage servicing process….In its lawsuit, the CFPB alleges that Ocwen:

Serviced loans using error-riddled information: Ocwen uses a proprietary system called REALServicing to process and apply borrower payments, communicate payment information to borrowers, and maintain loan balance information. Ocwen allegedly loaded inaccurate and incomplete information into its REALServicing system. And even when data was accurate, REALServicing generated errors because of system failures and deficient programming. To manage this risk, Ocwen tried manual workarounds, but they often failed to correct inaccuracies and produced still more errors. Ocwen then used this faulty information to service borrowers’ loans. In 2014, Ocwen’s head of servicing described its system as “ridiculous” and a “train wreck.”

Illegally foreclosed on homeowners: Ocwen has long touted its ability to service and modify loans for troubled borrowers. But allegedly, Ocwen has failed to deliver required foreclosure protections. As a result, the Bureau alleges that Ocwen has wrongfully initiated foreclosure proceedings on at least 1,000 people, and has wrongfully held foreclosure sales. Among other illegal practices, Ocwen has initiated the foreclosure process before completing a review of borrowers’ loss mitigation applications. In other instances, Ocwen has asked borrowers to submit additional information within 30 days, but foreclosed on the borrowers before the deadline. Ocwen has also foreclosed on borrowers who were fulfilling their obligations under a loss mitigation agreement.

Failed to credit borrowers’ payments: Ocwen has allegedly failed to appropriately credit payments made by numerous borrowers. Ocwen has also failed to send borrowers accurate periodic statements detailing the amount due, how payments were applied, total payments received, and other information. Ocwen has also failed to correct billing and payment errors.

Botched escrow accounts: Ocwen manages escrow accounts for over 75 percent of the loans it services. Ocwen has allegedly botched basic tasks in managing these borrower accounts. Because of system breakdowns and an over-reliance on manually entering information, Ocwen has allegedly failed to conduct escrow analyses and sent some borrowers’ escrow statements late or not at all. Ocwen also allegedly failed to properly account for and apply payments by borrowers to address escrow shortages, such as changes in the account when property taxes go up. One result of this failure has been that some borrowers have paid inaccurate amounts.

Mishandled hazard insurance: If a servicer administers an escrow account for a borrower, a servicer must make timely insurance and/or tax payments on behalf of the borrower. Ocwen, however, has allegedly failed to make timely insurance payments to pay for borrowers’ home insurance premiums. Ocwen’s failures led to the lapse of homeowners’ insurance coverage for more than 10,000 borrowers. Some borrowers were pushed into force-placed insurance.

Bungled borrowers’ private mortgage insurance: Ocwen allegedly failed to cancel borrowers’ private mortgage insurance, or PMI, in a timely way, causing consumers to overpay. Generally, borrowers must purchase PMI when they obtain a mortgage with a down payment of less than 20 percent, or when they refinance their mortgage with less than 20 percent equity in their property. Servicers must end a borrower’s requirement to pay PMI when the principal balance of the mortgage reaches 78 percent of the property’s original value. Since 2014, Ocwen has failed to end borrowers’ PMI on time after learning information in its REALServicing system was unreliable or missing altogether. Ocwen ultimately overcharged borrowers about $1.2 million for PMI premiums, and refunded this money only after the fact.

Deceptively signed up and charged borrowers for add-on products:When servicing borrowers’ mortgage loans, Ocwen allegedly enrolled some consumers in add-on products through deceptive solicitations and without their consent. Ocwen then billed and collected payments from these consumers.

Failed to assist heirs seeking foreclosure alternatives: Ocwen allegedly mishandled accounts for successors-in-interest, or heirs, to a deceased borrower. These consumers included widows, children, and other relatives. As a result, Ocwen failed to properly recognize individuals as heirs, and thereby denied assistance to help avoid foreclosure. In some instances, Ocwen foreclosed on individuals who may have been eligible to save these homes through a loan modification or other loss mitigation option.

Failed to adequately investigate and respond to borrower complaints:If an error is made in the servicing of a mortgage loan, a servicer must generally either correct the error identified by the borrower, called a notice of error, or investigate the alleged error. Since 2014, Ocwen has allegedly routinely failed to properly acknowledge and investigate complaints, or make necessary corrections. Ocwen changed its policy in April 2015 to address the difficulty its call center had in recognizing and escalating complaints, but these changes fell short. Under its new policy, borrowers still have to complain at least five times in nine days before Ocwen automatically escalates their complaint to be resolved. Since April 2015, Ocwen has received more than 580,000 notices of error and complaints from more than 300,000 different borrowers.

Failed to provide complete and accurate loan information to new servicers:Ocwen has allegedly failed to include complete and accurate borrower information when it sold its rights to service thousands of loans to new mortgage servicers. This has hampered the new servicers’ efforts to comply with laws and investor guidelines.

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  1. Sue

    I had a mortgage with Indymac Mortgage Services. Mortgage proceeds were made possible by Deutsche Bank. Deutsche Bank issued the engineered by financial and mathematical geniuses mixed credit risk mortgage investment paper for many clueless German small investors. Ocwen acquired some of Indymac’s former portfolio. My loan is now serviced by Ocwen . My calls to the customer service department are answered from Calcutta, India. They do not provide me with any of the once before classic mortgage payment temporary reliefs like payment deferments. Dealing and solving the first stages of delinquency by Ocwen lacks any kind of tools and heirarchical exception approval levels.

  2. perpetualWAR

    Let’s hold the crooks accountable after all the houses have been stolen.

    I. Hate. Our. Corrupt. Government.

  3. flora

    “no one has gone to jail”

    I zipped ahead to page 92 to see what punishment the CFPB thinks appropriate. Looks like another wrist slap: Fines and some claw back of ill gotten gains. Price of doing business. No one goes to jail. The Obama bank (no) accountability doctrine continues.

    Say what you will about W. Bush (and I’ve said much), his administration wasn’t afraid of sending executives from Enron, Worldcom, and Tyco to prison for securities fraud.

    1. Vatch

      You’re right, Dubya’s administration actually sent some business executives to prison, although that administration’s slip shod regulatory practices helped to enable the practices that led to the Great Financial Collapse.

      I’m wondering whether the relief requested by the Bureau against Ocwen is quite as wrist slappy as you fear. Number on the list of requested actions:

      “3. Award such relief as the Court finds necessary to disgorge the Defendants of unlawful gains;”

      I’m not sure exactly what this means. Could it be a request to seize all Ocwen revenues based on the unlawful actions? Conceivably, that could be a very significant amount of money. Am I being overly optimistic?

      1. JTMcPhee

        That is a meaningless catchall that lawyers throw into complaints. That’s what it means.

        Occasionally an activist judge, who got pissed off enough by what us mopes would see as outrageous conduct, and who takes his oath seriously, might look to that clause to actually apply an effective remedy (limited, of course, to “disgorging unlawful gains,” a huge invitation for defense lawyers to obfuscate).

        But it would be a cold day in hekk before a judge would “reach out and touch someone” in the form of an individual corporate officer or director or lower-level employee in a way that would punish the individual as might be warranted if there were actual enforcement people bringing this action. The caption does not name a single individual natural person, in any event. Due process requires that, before any personal individual liability could attach. Without personal liability, there will never be any rectification or deterrence. And this is purely a civil case in any event, with no criminal penalties possible, and therefore basically toothless,

        And the history of such actions pretty uniformly is “pay the fine,” give the US Attorney and Justice person and Agency head a photo op (“largest settlement in any case of this kind!!!!!”), and let the barstids walk away with the real money…

        1. Vatch

          Oh well. Sometimes my fantasies get out of control, and then somebody reminds me that we’re in the real world.

        2. Paul P

          Maybe a stockholder intervention to collect the penalties the corporation
          has to pay from wrongdoing employees or a post-judgement stockholder
          suit against the corporation for the same relief.

    2. reslez

      > Say what you will about W. Bush (and I’ve said much), his administration wasn’t afraid of sending executives from Enron, Worldcom, and Tyco to prison for securities fraud.

      Indeed, it’s a shame that Trump is turning out to be such human garbage. Imagine if we had a President who cared a tiny bit when his voters’ homes were being stolen. Instead we get zombie-headed catch phrases about regulations strangling our robber kings’ ability to commit piracy and murder.

      Illegal foreclosures destroyed families, created suicides, even led to mass violence incidents. The home is the foundation of family life for those who are able to afford them, the cornerstone of the American dream. Imagine if we had more than 1 or 2 elected representatives willing to stand up for their constituents. Now we can’t elect non-billionaires because they always sell out, and we can’t elect billionaires because they’re the ones who do the buying. If you force people to play a losing game over and over, they’ll roll over and resign themselves to their fate 100% of the time. That’s how that always works, right? /s

      The elites are writing themselves revolution futures because they expect to win.

    3. Procopius

      I have always been charmed by what Obama said when his administration’s failure to act against the most egregious abusers was pointed out to him, “You have to remember that a lot of what they did wasn’t illegal.” Of course he implies there that he understands that some of what they did was illegal, but that didn’t alter his neoliberal policy position.

  4. Northeaster

    David Dayden wrote up a firestorm about this yesterday on Twitter.

    The false narrative continues to be pushed, while no one in the media on either side asks tough questions. Case and point:

    My Senator, Elizabeth Warren, is pushing her new book on her tour. The media of course asks softball questions while she gets to lob grenades at Republicans. Just before this Ocwen issue came up, Bank of America was slapped with a $45 million dollar fine (cost of fraud and doing business). In both cases we have systemic fraud and abuses upon Americans, one would think someone like Warren would take a stand on principle? Nope. Her personal bank of record is none other than: Bank of America.

    There will be no relief coming. All of them are deceivers. The media is right along there with them.

    1. flora

      Bank of America is reported to have a net profit of over $3 Billion (that’s with a ‘B’) dollars in 2016. So, how harsh is that $45 million dollar fine?. It’s slightly more than 1% of their reported net profit. Will a 1%+ fine and no one goes to jail “punishment” deter the C-suite honchos from repeating these scams? hahaha.. er… who knows?

      1. PKMKII

        I say, don’t fine them $45 million of cash (or whatever the amount is the crooks are held liable for). Fine them $45 million worth of voting stock, to be handed over to the wronged parties. Wronged parties can’t sell the stock (at least initially) but get the dividends. Wronged parties get to select board member(s) to act and vote on their behalf.

    2. EyeRound

      Kudos and thank you to Yves for publishing this!

      Dayen’s piece on the CFBS’s Ocwen suit is out at The Nation today:

      Banking abuses continue. The CFPB remains under attack by the Republicans, and Cordray’s future has just become uncertain, as he may run for Ohio governor. If the Dem’s back him in this move, it will be another sign of how little concern establishment Dems harbor for “ordinary people.”

  5. Susan the other

    It’s still too painful to dredge it up and think about it. 10 million people lost their houses; 30 million lost their jobs; an entire young generation was sent to the attic to live; but the big banks had one windfall after another – it was financial war and the whole debacle was a war crime. The country has not recovered nor will it until we start doing things differently. Completely differently.

  6. Enquiring Mind

    The loan servicer problems echo those of other Street-induced troubles. When contracts for MBS, or what-have-you, limit and define specific payments, and when companies come up against those hard limits, then something has to give. Nowadays, that more often seems to result in shady practices or other ethical lapses that aren’t really thought to be lapses at all. In other times, what resulted was bankruptcy or another severe action, along with public scorn, shame, time in the figurative stocks.

    In an era where accountability is too rare, what else would you expect? If you instead shoot the lead elephant, then the herd stands a better chance of stopping, or at least changing direction. Nobody wants to shoot since the campaign contributions and lobbying efforts make that unpleasant. Time for truth in legislation, where there is an abstract in plain English saying what bills do, a listing of all the specific costs and benefits by party and a disclosure of all lobbying and other emolumentary (sounds like it should be a word, doesn’t it?) actions and amounts.

    Hey, a guy can dream, can’t he?

  7. Stupendous Man - Defender of Liberty, Foe of Tyranny

    Underwhelming is an understatement. I’m thinking more like totally ineffective, and/or worse than useless, with the latter probably being the most accurate.

    The National Mortgage Settlement merely swept the criminal behaviors under the rug. It failed to compensate victims adequately. It failed to stop the behaviors. Worst is that it created a false impression that the issues involved had been resolved. It included “threshold error rates” with maximum penalties of merely $1 million. That was no deterrent at all. Unfortunately the NMS has been the template for … all of the other worse than useless settlements.

    I’ve read many of the other worse than useless settlements. Without reading this complaint I’m confident I can make an accurate prediction about the effect it will ultimately have: worse than useless.

    I note that a decent pitchfork with a hickory handle can be found new from numerous sources for as little as $20. A 10-12 count pack of tiki torches can be found for $30-40.

  8. DolleyMadison

    Too little too late. After winning 4 times, last week judge signed order of Foreclosure – wouldn’t read my pleading or allow me to speak. (same default date which should be res judicata) We never missed a payment, always paid our own taxes and insurance yet they would claim the taxes we made were paid by them, and charged for 2500 per year for insurance, added 10s of thousands to principle – even came in with totaling new contract with forged signature this time w/different payment amount to explain away why my bank records were wrong . Have been fighting for 6 years – no note, copy of note has no endorsements; 4 different affidavits of default, 4 different transaction histories, 3 different sets of allonges, etc. I am going to try to appeal but as a pro se it doesn’t look good.

  9. Sluggeaux

    This sort of servicing fraud is endemic and continued throughout the Obama administration. I did a re-fi in 2012 that under-funded my escrows and attempted to force-place servicer-captive insurance at quadruple my normal rate (not Ocwen). I saw them coming and paid my premium myself. Rather than deal with a complaint and a lawsuit, I was able to do a quickie re-fi through a private banker friend. Then I got to watch those idiots scramble to refund my escrow account and convey the deed of trust through their faulty MERS docs. Big laughs — I was making accelerated payments, so the extra 10 months on the loan aren’t going to make much of a difference at the lower rate I got.

    These crooks knew that I was a lawyer and fairly sophisticated — they tried to screw me anyway. It’s just how they roll when there is no Cop on the Beat.

  10. Steve

    Poor Ocwen, Wilbur Ross sold them all those designed to fail American Home Mortgage Servicing Inc. (AHMSI) toxic loans then made a quit exit though the kitchen out the doggie door.

  11. Paul

    So what happens now? Ive been “rolling” with ocwen for a very long time. All of these stories and situations are exactly me. I almost lost the house in the recession, dwindled an attempt to start a business to almost nothing, lost savings, lost 401k accounts. I believe I have come very close to losing my mind until this report came out. For what it is worth, I am somewhat at ease that I am not the only one. My story starts with that one phone call that said, “Sir, you will have to default on your loan to get the benefits of a loan modification, we recommend it and we will take care of you”….10 yrs later, forced to sign into a modification with a 170k balloon payment in 20 yrs. I still don’t understand why they cannot provide an amortization schedule. And as of today 4/22/2017, I haven’t received any type of confirmation that the new agreement is permanent. Ive reached out to the New Mexico AG office, US Treasury, various attorneys who have had dealings with ocwen, I have my literature on ready for a formal complaint to these agencies. I held off because I simply don’t know what will exactly come out in the “wash”, this recent news is telling me exactly what it will be…..rubish! I’ve wasted my time writing NM state government because nothing ever happens in New Mexico, our politicians only prepare and look forward to the parades. So I am curious what will be happening……no……I am concerned what will be happening.


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