Risk & Compliance

Mortgage Loan Servicer Under Siege

Mortgage-backed securities investors jump on the bandwagon and accuse Ocwen Financial of mishandling loan modifications.
Katie Kuehner-HebertJanuary 27, 2015

Ocwen Financial Monday responded to investors’ allegations that the Atlanta mortgage servicer defaulted on its agreement to collect payments on $82 billion worth of home loans, saying the claims were “baseless.”

Ocwen, one of the nation’s largest mortgage loan servicers, under fire from regulators for mishandling foreclosures, is now also in investors’ crosshairs. Investors owning at least 25% of voting rights for 119 mortgage-backed securities deals “sent a so-called notice of non-performance to trustees for the bonds, saying that the company has failed to meet its requirements as a loan servicer while shifting the costs of regulatory-probe settlements to them,” according to Bloomberg. The investors want Ocwen removed as servicer of the loans.

Ocwen said in a press release that its attorney Richard A. Jacobsen sent a letter to the investors’ attorney, Kathy Patrick, stating that all of the servicer’s mortgage loan modifications, including principal reductions, are designed to be net present value positive, which “makes sound economic sense.”

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“Your letter obscures the ultimate objective of your investor clients: to stop servicers from modifying loans and force them to foreclose on and evict as many struggling homeowners as quickly as possible,” Jacobsen wrote. “While knee-jerk foreclosures may redound to the special economic interests of your clients, they are not in the best interests of the trusts as a whole, not consistent with industry practice, and therefore prohibited under the servicing agreements.”

Jacobsen wrote that the investors’ “ill-conceived effort” to force foreclosures was part of an overall industry-wide “pro-foreclosure campaign” that has been criticized by numerous national housing, consumer protection, and civil rights groups “as anti-consumer and contrary to good public policy.”

A Reuters article Monday said that Patrick sent a letter to Ocwen in response, saying that firm was resorting to “false attacks” rather than responding to the investors’ legitimate questions over how the company modifies mortgages. She claimed that Ocwen’s modifications re-default at higher rates than comparable loans with other servicers and can result in higher, not lower, payments for borrowers.

The investors also object to Ocwen using trust funds to “pay” its borrower relief obligations under the 2013 national mortgage settlement, Patrick wrote, according to Reuters.

The chairman of Ocwen, BIll Erbey, stepped down in mid-January. In addition, a hedge fund creditor is claiming Ocwen is in default on $925 million in debt. Last, Friday, Ocwen agreed to pay $2.5 million and retain an auditor to review its mortgage-servicing practices in a settlement with the state of California.

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