WEST PALM BEACH, Fla. (CN) — In a lawsuit brimming with claims of wrongful foreclosures, deceptive, unfair and incompetent debt collection, the Consumer Financial Protection Bureau says more than 300,000 homebuyers in the past two years have complained about Ocwen Financial, one of the largest nonbank mortgage servicers in the country.
The 14-count federal lawsuit says Ocwen’s widespread mishandling of borrowers’ mortgage accounts violated a bevy of consumer protection laws.
“Ocwen has improperly calculated loan balances, misapplied borrower payments, failed to correctly process escrow and insurance payments, and failed to properly investigate and make corrections in response to consumer complaints,” the CFPB says in the April 20 complaint. “Ocwen has compounded these failures by illegally foreclosing upon borrowers’ loans and selling loan servicing rights to servicers without fully disclosing or correcting errors in borrowers’ loan files.”
All in all, the CFPB says, “Ocwen has failed borrowers. Since April 2015, Ocwen has received more than 580,000 complaints and written notices of error from more than 300,000 different borrowers.”
One borrower, whose grievances typify Ocwen’s servicing blunders, was placed into foreclosure with an erroneous $88,000 escrow shortage noted in his account, though it actually had a surplus of $36,800, the complaint states.
As it did with many other borrowers, Ocwen had force-placed unneeded and overpriced insurance on the man’s home, and failed to properly post his payments under a loan modification program, the CFPB says. Eventually, Ocwen admitted “that the negative escrow balance was wrong and based on erroneous charges it imposed on the borrower for lender-placed flood and hazard insurance … for multiple years.”
The complaint continues: “The borrower described the ordeal as follows: ‘I spent one full day a week for the last three and a half years dealing with Ocwen. This includes calling the company mainly waiting on the phone on hold and talking to individuals at their call center … and faxing and emailing. The costs and time included attorney fees and paying for my own counsel, which cost between $6,000 and $8,000, to respond to the Notice of Foreclosure, amongst other costs.’”
The illegal foreclosure practices were rampant, according to the CFPB.
Among other things, Ocwen conducted foreclosure sales on homes of borrowers who had been abiding by their loss mitigation agreements and trial loan modifications, the agency says. After the January 2014 implementation date for new servicing rules under the Dodd-Frank Act, Ocwen “inappropriately made at least one thousand foreclosure first filings” while it was still evaluating the underlying homeowners’ loss mitigation applications.
In other instances, Ocwen conducted foreclosure sales of homes before the deadline it provided the borrowers to submit missing mitigation-application documents. The practice prompted an Ocwen employee to write in internal correspondence: “To me that does not sound right, where we inform the borrower to send in documents by a date but go ahead with sale prior to expiration of that date,” according to the 93-page lawsuit.
Ocwen’s own head of servicing called the company’s servicing technology an “absolute train wreck” in 2014, according to the CFPB.
That memo from the head of servicing to Ocwen’s CEO continued: “I know there’s no shot in hell, but if I could change systems tomorrow I would. I can’t tell you the number of hours I and others spend on basic servicing technology blocking and tackling. I’m not talking about differentiators here. I’m talking about getting system to stay online, escrow analysis to work, letters to print, etc. It’s ridiculous.”
The laundry list of snafus involving Ocwen’s REALServicing software included “syncing and updating failures between REALServicing and Ocwen’s insurance vendor’s system” that prompted the vendor to overlook that certain homeowners had escrow accounts. The vendor consequently failed to make disbursements to the homeowners’ insurance companies, the bureau says.
Erroneous data in REALServicing resulted in Ocwen mismanaging disbursements en masse.
“Ocwen, for example, made double payments (out of borrowers’ accounts) for the same insurance policy on approximately 3,275 accounts, disbursed premiums to wrong payees and failed to timely disburse funds to pay approximately 40,000 insurance premiums,” the complaint states, without specifying a timeframe.
Ocwen’s failures resulted in hazard insurance lapses for more than 10,000 borrowers. In the year beginning in April 2015, Ocwen received complaints about its payment processing from more than 68,000 borrowers, the CFPB says.
One borrower’s mortgage payment was misdirected into a suspense account, and as a result she was categorized as delinquent, even though she was pre-paying her monthly installments, according to the complaint. She received embarrassing collection calls at home and at work.
“For borrowers in bankruptcy, Ocwen has failed to process and apply payments correctly in accordance with certain bankruptcy requirements. By 2016, Ocwen had concluded that REALServicing was broken in a number of ways that adversely affected borrowers whose loans were subject to bankruptcy protections,” the CFPB says.
And that’s not all. Ocwen engaged in dubious marketing for add-on products such as identity theft protection and credit monitoring, according to the lawsuit. In one marketing campaign, Ocwen sent homebuyers what appeared to be checks in the mail, using small print to subtly disclose that if they cashed the checks, the homebuyers were agreeing to enroll in an add-on product, the CFPB says.
It seeks damages for violations of the Fair Debt Collection Practices Act, the Consumer Financial Protection Act, the Homeowners Protection Act, the Truth in Lending Act and the Real Estate Settlement Procedures Act, foreclosure violations, servicing policies and procedures violations, notice of error violations, escrow violations, deceptive debt collection, unfair use of inaccurate and incomplete information to service loans, failure to timely and appropriately credit payments, deceptive marketing, unfair billing and processing, deceptive foreclosure communications, unfair foreclosure practices, and deceptive acts and practices on loans.
The lawsuit was filed in conjunction with cease-and-desist actions filed by a slew of state regulators who want to restrict Ocwen’s ability to take on new mortgage files until Ocwen provides evidence that its mortgage servicing deficiencies have been rectified.
Ocwen issued a statement in response to the CFPB’s lawsuit, saying it “strongly disputes the CFPB’s claim that Ocwen’s mortgage loan servicing practices have caused substantial consumer harm.”
“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 said.
Ocwen says it does more than most mortgage servicers to work with distressed homeowners in danger of foreclosure.
“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 has been confirmed by independent third-party studies, which find that Ocwen has a superior record helping borrowers bring their payments current, stay current, and repay their mortgage,” Ocwen said.
It called the lawsuit an “unfortunate example of overreaching by the CFPB,” and said it would “vigorously defend” itself “against these unfounded claims.”
“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 (NMS), which the CFPB and Ocwen signed in December 2013,” Ocwen said.
It said the allegations in the lawsuit pertain to a small percentage of its loan servicing portfolio. It repeatedly assured the Consumer Financial Protection Bureau that it will remediate any undue financial harm experienced by its customers, and has already done so in many instances, according to the statement.
The West Palm Beach, Fla.-based company on Friday released another rebuttal, disputing state regulators’ claims that its customer escrow account management is in disarray, and that its financial condition is deteriorating.
“Ocwen disagrees with any allegation it is not financially sound. Despite significant operating losses from 2014 to 2016 driven by a shrinking portfolio and $171 million of state and national regulatory monitoring expenses, Ocwen generated over $1.4 billion of positive operating cash flow,” Ocwen said.
“No mortgage servicer is perfect — to the extent mistakes are made, we have a process to identify and remediate consistent with other mortgage servicers,” the statement adds.
Ocwen has been the subject of a barrage of prior regulatory actions resulting in costly settlements in recent years.
In December 2013, as part of the National Mortgage Settlement, Ocwen agreed to dish out $2 billion to underwater borrowers.
Then in December 2014, Ocwen agreed to pay another $150 million to settle a case in which the New York Department of Financial Services accused it of mortgage-document tampering and other misdeeds. The deal generally precluded the company from buying new mortgage-servicing rights in bulk.
In February this year, HousingWire reported, Ocwen arrived at a roughly $225 million settlement with the California Department of Business Oversight that released restrictions on Ocwen in that state.
On the heels of the announcement of Thursday’s CFPB lawsuit, the company lost half its market capitalization, and its share price dipped below $2.50.
The Courthouse News database contains more than 1,000 lawsuits against Ocwen since 2016, the latest being a shareholders class action filed Friday in West Palm Beach Federal Court, accusing the company of inflating its share price through false and misleading statements.