Servicer Takes $100 Million Charge for Potential Settlement Over Backdated Foreclosure Notices

Ocwen Financial, the nation’s top non-bank mortgage servicer, announced Thursday that the company has taken a $100 million charge for a potential settlement regarding claims that Ocwen sent backdated foreclosure notices to thousands of borrowers.

New York’s Financial Services Superintendent, Benjamin Lawsky, sent a letter to Ocwen on October 21 stating that an investigation of Ocwen’s servicing practices revealed that the company sent backdated notices of foreclosure to about 7,000 borrowers after the payment deadline had passed. Lawsky’s office just concluded a year-long investigation after the backdated foreclosure issue was first brought to light.

In a conference call with analysts on Thursday, Ocwen executive chairman William Erbey left open the possibility that legal costs could drive the $100 million amount higher.

“We reached a point where we were far enough (along) in discussions with the regulator, that our best estimate of the exposure was $100 million at the end of the (third) quarter,” Erbey said. “We’re trying to be clear that they could be materially different, but we really don’t know.”

Ocwen initially blamed the backdated letters on computer errors; the company said that about 70 percent of the borrowers who received the backdated foreclosure letters received loan modifications and that less than 5 percent of them actually went to foreclosure.

The backdated foreclosure letters are not the only problem facing Ocwen, however. According to CFPB’s consumer complaint database, Ocwen has been the subject of more than 13,500 mortgage loan-related complaints from consumers since the Bureau began fielding complaints nearly three years ago. Consumers logged a higher number of mortgage-loan related complaints with CFPB for only two institutions, Bank of America and Wells Fargo. More than 123,000 of the 305,000 consumer complaints in the CFPB complaint database were related to mortgages, making that the category with the highest number of complaints.

“I want to emphasize that Ocwen takes great efforts to keep borrowers in their homes and to avoid foreclosures,” Erbey said in a release. “Ocwen recently reached a significant milestone by making its 500,000th loan modification, including 290,000 HAMP(Home Affordable Modification) modifications. Ocwen is the leader in foreclosure prevention with 44 percent more HAMP modifications than any other servicer. We work very hard to keep borrowers in their homes and that is why we take the concerns raised by the New York Department of Financial Services so seriously. We have numerous compensating controls in place which we believe should have prevented borrower harm. Nonetheless, Ocwen is proactively creating a process whereby any borrower, who believes they received a misdated letter, and were harmed as a result, will have the opportunity to receive a complete file review to resolve any issues caused by the misdating.”

Analysts believe that Ocwen’s regulatory challenges will prevent the company from purchasing $39 billion in mortgage servicing rights from Wells Fargo, one of the nation’s largest bank mortgage servicers.

Meanwhile, Ocwen announced a third-quarter net loss of $73.5 million, or 58 cents per share in its Q3 financial statement released Thursday.

The announcement of the $100 million charge came two days after the Consumer Financial Protection Bureau (CFPB) issued a statement saying that some mortgage servicers had violated the new servicing rules that went into effect in January 2014. One of the violations CFPB examiners found most often was failure on the part of the servicer to convert trial loan modifications into permanent loan modifications.

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