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From Banking and Finance Law Daily, December 22, 2014

Ocwen chair resigns, borrowers get $150M, in NY settlement

By J. Preston Carter, J.D., LL.M.

William C. Erbey will step down from his position as Executive Chairman of Ocwen Financial Corporation and four related companies as part of a consent order entered into with the New York Department of Financial Services (NYDFS). The consent order addresses serious conflict of interest issues uncovered during a NYDFS investigation and mandates that Ocwen provides direct homeowner relief, totaling $150 million, and also undertakes significant operational reforms.

Background. Ocwen is the fourth largest mortgage loan servicer and the largest servicer of subprime loans in the United States, servicing an unpaid principal balance of approximately $430 billion. In 2010 and 2011, the NYDFS participated in a multistate examination of Ocwen and its acquired entities that identified deficiencies in Ocwen’s servicing platform and loss mitigation infrastructure, including robo-signing, inaccurate affidavits and failure to properly validate document execution processes, missing documentation, wrongful foreclosure, failure to properly maintain books and records, and initiation of foreclosure actions without proper legal standing.

The NYDFS announcement noted that Ocwen and the NYDFS entered into an agreement in 2011. In a 2012 surprise examination of Ocwen’s compliance, the NYDFS uncovered significant violations. Consequently, Ocwen entered into a Consent Order with NYDFS, which required Ocwen to retain an independent compliance monitor for two years. During the course of the Monitor’s review, it identified numerous and significant additional violations of the 2011 Agreement, as well as violations to the New York State laws and regulations.

The Monitor discovered that Ocwen’s inadequate information technology systems sent borrowers incorrect or outdated information and backdated letters, and unreliably tracked data for investors, which resulted in inaccurate records. Moreover, Ocwen’s training of customer support staff resulted in conflicting responses to borrowers’ questions and inaccurate recordkeeping of issues raised by borrowers.

The Department’s review of Ocwen’s mortgage servicing practices also uncovered a number of conflicts of interest between Ocwen and the four related companies—Altisource Portfolio Solutions S.A., Altisource Residential Corporation, Altisource Asset Management Corporation, and Home Loan Servicing Solutions, Ltd.—all chaired by Erbey who is also the largest individual shareholder of each. Despite his holdings, Erbey has not recused himself from approvals of several transactions with the related parties.

Relief. Under the Consent Order, Ocwen will undertake significant operational reforms to address the servicing misconduct and conflict of interest issues at the company; have an NYDFS-selected, independent monitor on site for up to an additional three years; and provide "hard-dollar" assistance to New Yorkers totaling $150 million. Ocwen will not be permitted to acquire additional mortgage servicing rights until it receives approval from the NYDFS.

In addition to the direct payments to Ocwen homeowners, the company must also provide borrowers with: their complete loan files; detailed explanations for denials of modifications, short sales, or deed-in-lieu of foreclosures; and copies of credit reports for borrowers who have been reported negatively by Ocwen.

To help address conflict of interest issues, Ocwen will expand its Board of Directors, by two independent board members, in consultation with the Monitor. The Monitor will review the adequacy and effectiveness of Ocwen’s operations, and also assess Ocwen’s progress in complying with recommended corrective measures.

Ocwen response. An Ocwen press release announcing the settlement stated: “We believe this agreement is in the best interests of our shareholders, employees, borrowers and mortgage investors. We will continue to cooperate with the DFS in the implementation of the terms of this settlement which we believe will allow Ocwen to continue to focus on what we do best—helping homeowners.”

Companies: Altisource Portfolio Solutions S.A.; Altisource Residential Corporation; Altisource Asset Management Corporation; Home Loan Servicing Solutions, Ltd.; Ocwen

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