Ocwen Under Fire For Mishandling Mortgages They Service

Last month the bondholders of 25% Voting Rights in 119 Residential Mortgage Backed Securities Trusts with an original balance of more than $82 billion issued a Notice of Non-Performance to the Trustees of those Trusts,Securities Administrators, and/or Master Servicers, regarding the material failures of Ocwen Financial Corporation (Ocwen) as Servicer and/or Master Servicer, to comply with its covenants and agreements under governing Pooling and Servicing Agreements. Notices went to BNY Mellon, Citibank, Deutsche Bank, HSBC, US Bank, and Wells Fargo, who are all acting as Trustees for these Trusts.

Based on a lengthy investigation and analysis by independent experts, the Holders’ Notice alleges Ocwen has failed to perform, in its  contractual obligations as Servicer and/or Master Servicer under the applicable PSAs in the following ways:

• Use of Trust funds to “pay” Ocwen’s 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; 

• Employing conflicted servicing practices that enriched Ocwen’s corporate affiliates, including Altisource and Home Loan Servicing Solutions, to the detriment of the Trusts, investors, and borrowers;

• Engaging in imprudent and wholly improper loan modification, advancing, and advance recovery practices;

• Failure to maintain adequate records,  communicate effectively with borrowers, or comply with applicable laws, including consumer protection and foreclosure laws; and,

• Failure to account for and remit accurately to the Trusts cash flows from, and amounts realized on Trust-owned mortgages.

As a result of the company’s improper servicing practices alleged in the Notice, the bondholders further allege that their experts’ analyses demonstrate that the MBS Trusts serviced by Ocwen have performed materially worse than Trusts serviced by other servicers. The bondholders further allege that these claimed defaults and deficiencies in the servicer’s performance have materially affected the rights of the Holders and constitute an ongoing Event of Default under the applicable PSAs.  The bondholders intend to take further action to recover these losses and protect the Trusts’ assets and mortgages. 

Then, last week Wells Fargo announced that a majority of investors had directed it to terminate Ocwen and they have informed Ocwen they will be doing so soon.

According to Bloomberg, “Downgrades of Ocwen’s servicing ratings last year triggered technical defaults in the bonds, prompting Wells Fargo to solicit instructions from investors on what to do next. They were also among deals where some bondholders had accused Ocwen of “imprudent and improper servicing practices.”

Wells Fargo plans to transfer the servicing to Select Portfolio Services which is a unit of Zurich based Credit Suisse Group AG once they receive approval from credit rating agencies.

Ocwen, the largest servicer of loans within mortgage bonds without government backing, has seen its stock tumble 73 percent over the past year to $9.78. Last year, the servicer was forced to pay $150 million to the state of New York and remove William Erbey as CEO. In addition, Ocwen was forced to pay an additional $2.5 million to the state of California last year.