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Corporate Recidivism? Ocwen's Charter Problems

posted by Adam Levitin

Last month mortgage servicer Ocwen (that's NewCo backwards) was mauled by the NY State Department of Financial Services. Now the California Department of Corporations is seeking to revoke Ocwen's license to do business in that state. 

Here's the thing that is often forgotten:  this ain't the first time!  Ocwen used to be a federal thrift. In 2005, however, Ocwen "voluntarily" surrendered its thrift charter in the face of predatory lending/servicing investigation. And here we are, a decade later. What's changed?  By the NY and California allegations, not much. In other words, we're looking at a potential case of corporate recidivism. I'll refrain from commenting on the merits of the allegations, but there should be zero tolerance for corporate recidivism. 

While I'm at it, a word about the substance of the NY allegations and remedy. NYDFS accused Ocwen of backdating loan modification denial letters to borrowers facing foreclosure (and thereby depriving the borrowers of a chance to timely appeal the denial). Sadly, this isn't the first time backdating has reared its head in the servicing business. Remember how the robo-signing story broke? A GM/Ally employee named Jeffrey Stephan stated in a deposition that he personally signed some 10,000 foreclosure affidavits a month. That was the story that the media glommed onto. But the 10,000 affidavits/month was an unexpected deposition by-product. The real issue uncovered in that deposition was that GM/Ally had been backdating foreclosure documents to show that it had standing at the time it filed foreclosure suits, despite not actually being the noteholder and mortgagee until a subsequent date. Loans were supposedly transferred on Christmas Day, Easter, New Year's Day, etc. So it would seem that backdating may not be an isolated problem to Ocwen. 

Lastly, it's worth comparing the NYDFS remedy with the National Mortgage Settlement. NYSDFS got $150 million in "hard dollar" loan mods (not mods paid for on investors' dime).  Ocwen is subject to an independent monitor's supervision for three years and cannot acquire any more mortgage servicing rights (MSRs). And, Ocwen's Chairman must resign and two additional independent board members must be added. 

In contrast, the National Mortgage Settlement (NMS) was largely based on "soft dollar" mods, rather than real borrower relief. It did come with an independent monitor, but the NMS monitor isn't able to be in the banks' face the way the Ocwen monitor can. The NMS didn't limit acquisition of MSRs. And it didn't touch existing bank management or board structure. Put it this way: if the federal government and state AGs had as much spine as Ben Lawsky, Mssrs. Dimon, Moynihan, and Stumpf would be looking for new jobs (or enjoying their retirement). Of course, Ocwen is a scrappy, non-bank, non-SIFI. So it doesn't enjoy the kid glove treatment. 

The NYDFS Ocwen settlement sets out a new potential paradigm for mass consumer financial abuse settlements:  real money, serious monitoring, and heave-ho to the old management. If senior management thinks that their job security is at risk for consumer abuse, they might well be more proactive at preventing it in the first place. 

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Comments

nice find. Do you have links to the backgrounds of 2005 investigations/allegations? the article you linked to does not mention them

It would be rather strange to change management via bureaucratic momentum. One of the CEOs you named got the job in 2010. Maybe you are anthropomorphizing business entities, and thus focusing on punishment detached from improving outcomes?

"Deja vue all over again" like Yogi would say.

Recall the Rudman Report of Fannie Mae done at a cost of $70 million plus. Let me paraphrase, "the bad guys are gone, now we have good management and are back on track".The Report paved the way to the largest meltdown in history.

Richard is absolutely correct in invoking Yogi. It absolutely astounds me that those in Enforcementland choose to go all Captain Renault whenever a servicer is caught doing something ELSE less than legal.

Mortgage servicing fraud has been laying waste to the economy and, more importantly, the American property owner for at LEAST two decades now.

Absolutely NO ONE in any regulatory or enforcement capacity has ANY right to even THINK about feigning shock at their actions at this point.

Judging by the FTC Civil Investigative Demands I've seen involving just Fairbanks Capital Corp. (n/k/a Select Portfolio Servicing), MSF has been known about since at LEAST 1999 if not earlier. Personally, I beleive that it came about roughly 15 minutes after Lewie Ranieri securitized his first bundle for Salomon Bros. circa 1987 (?).

The first step to solving a problem is admitting that there is one. Until and unless the regulators/enforcers are WILLING to do that, the beat will simply continue to go on.

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