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The new settlement with New York’s Department of Financial Services calls for resignation of the Chairman (Erbey), payment of a $100 million fine, Payment of $50 million in restitution to borrowers who were wrongfully foreclosed, and a set of rules requiring Ocwen to help borrowers avoid foreclosure. Schneiderman, Attorney General, was prosecuting the case aggressively. This will add to the growing list of questions from judges over rotating servicers and trustees, servicing practices, robo-signing, forgery, fabrication of documents and the refusal of the foreclosing party to simply show the funding for the loan and the consideration paid for the acquisition of the loan.
Why is this important: it reflects an administrative finding that Ocwen has been wrongfully foreclosing on people from 2009 to the present. And it directs money and other assistance to homeowners who find themselves tangled in the complex web of deceit that we call securitization (Adam Levitin calls it “securitization fail” because the loans never actually made it into the trust — because the proceeds of sale of mortgage bonds were never given to the trust by the investment bank who sold them).
The fine is a fraction of what it should be and the amount set aside for victims of wrongful foreclosure is pathetic. And it basically leaves the completed foreclosures to stand even though it is obvious that Ocwen was following the directive “We are in the business of foreclosure, not modification). And while the settlement requires Ocwen to provide the complete loan file on request it fails to state what happens if they don’t and perhaps more importantly it fails to give details of what must be in that loan file even though they are widely known. Specifically, the completed loan file would show wire transfer receipts and wire transfer instructions from a party who was acting as a conduit for the investor money — a party unrelated to the REMIC Trust and not tied to the investors by contract.
Another key provision requires Ocwen to provide a detailed explanation of why and how a request for workout or modification was denied.
But remember this is one state. If all 50 states demanded the same results, based upon the New York findings there could be a global fine of $5 Billion and restitution ($2.5 Billion) for U.S. homeowners who are victims of wrongful foreclosure in the amount of $2.5 billion. And if you add the other servicers who have been doing exactly the same thing as Ocwen, the amounts increase geometrically.
A key provision of the settlement is continued monitoring. So if there is an issue with a foreclosure of a mortgage serviced by Ocwen, a complaint to the office of the attorney general or the office of the New York Department of Financial Services will help — perhaps even if you are not a resident of the state of New York.
One obvious concession to the banks is the reference to the onboarding process. In allowing Ocwen to purchase servicing rights (MSR) the reference is vague as to defining “onboarding.” This phrase is often being used in Court to avoid producing real records and real testimony from real companies who were real servicers. Judges, seeing only what is in front of them, are forced to rule that the records of the new “servicer” are business records within the exception provided under the hearsay rule in most states.
PRACTICE POINTER FOR LAWYERS: If you fail to argue that the business record must contain entries made at or near the time of the transaction, you will most likely end up with records from a “new” party who is not a servicer but whose records contain the alleged records of other servicers. I don’t see how the onboarding process could ever be accepted in lieu of records and testimony from companies who actually did servicing of the account — i.e., receipt of payments from the borrower and remittance to the creditors.
Here are some salient quotes from the article:
ATLANTA, Dec. 22, 2014 (GLOBE NEWSWIRE) — Ocwen Financial Corporation (OCN) (“Ocwen”) today announced that it has reached a comprehensive settlement with the New York Department of Financial Services (“DFS”) related to the agency’s recent investigation.
“We are pleased to have reached a comprehensive settlement with the DFS and will act promptly to comply with the terms,” said CEO Ronald Faris. “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.”
Under the terms of the settlement, Ocwen will pay a civil monetary penalty of $100 million to the DFS by December 31, 2014, which will be used by the State of New York for housing, foreclosure relief and community redevelopment programs. The Company will also pay $50 million as restitution to current and former New York borrowers who had foreclosure actions filed against them by Ocwen between January 2009 and December 19, 2014. As previously communicated in the third quarter of 2014, Ocwen recorded a charge of $100 million to increase its legal reserves in anticipation of a potential settlement with the DFS. Ocwen will record an additional $50 million charge in its fourth quarter 2014 financial statements to reflect the final settlement amount.
…. founder William C. Erbey will step down from his position as Executive Chairman of Ocwen, effective January 16, 2015. Barry Wish, a current director of Ocwen, will assume the role of Non-Executive Chairman on that date.
Ocwen has also agreed to non-monetary provisions relating to New York borrower assistance measures, a monitor-led oversight of Ocwen’s operations, interactions with related parties and certain corporate governance measures. MSR acquisitions will be subject to Ocwen meeting specified benchmarks as well as DFS approval.
A summary of the settlement terms is below.
Settlement Summary of Monetary Provisions
- Ocwen will pay a civil monetary penalty of $100 million to the DFS by December 31, 2014, which will be used by the State of New York for housing, foreclosure relief and community redevelopment programs.
- Ocwen will also pay $50 million as restitution to current and former New York borrowers in the form of $10,000 to each borrower whose home was foreclosed upon by Ocwen between January 2009 and December 19, 2014, with the balance distributed equally among borrowers who had foreclosure actions filed, but not completed, by Ocwen between January 2009 and December 19, 2014.
Settlement Summary of Non-Monetary Provisions
Borrower Assistance
Beginning 60 days after December 19, 2014, and for two years, Ocwen will:
- Provide upon request by a New York borrower a complete loan file at no cost to the borrower;
- Provide every New York borrower who is denied a loan modification, short sale or deed-in-lieu of foreclosure with a detailed explanation of how this determination was reached;
- Provide one free credit report per year, at Ocwen’s expense, to any New York borrower on request if Ocwen made a negative report to any credit agency from January 1, 2010, and Ocwen will make staff available for borrowers to inquire about their credit reporting, dedicating resources necessary to investigate such inquiries and correct any errors.
Operations Monitor
- The DFS will appoint an independent Operations Monitor to review and assess the adequacy and effectiveness of Ocwen’s operations. The Operations Monitor’s term will extend for two years from its engagement, and the DFS may extend the engagement another 12 months at its sole discretion.
- The Operations Monitor will recommend and oversee implementation of corrections and establish progress benchmarks when it identifies weaknesses.
- The Operations Monitor will report periodically on its findings and progress. The currently existing monitor will remain in place for at least three months and then for a short transitional period to facilitate an effective transition to the Operations Monitor.
Related Companies
- The Operations Monitor will review and approve Ocwen’s benchmark pricing and performance studies semi-annually with respect to all fees or expenses charged to New York borrowers by any related party.
- Ocwen will not share any common officers or employees with any related party and will not share risk, internal audit or vendor oversight functions with any related party.
- Any Ocwen employee, officer or director owning more than $200,000 equity ownership in any related party will be recused from negotiating or voting to approve a transaction with the related party in which the employee, officer or director has such equity ownership, or any transaction that indirectly benefits such related party, if the transaction involves $120,000 or more in revenue or expense.
Corporate Governance
- Ocwen will add two independent directors who will be appointed after consultation with the Monitor and who will not own equity in any related party.
- As of January 16, 2015, Bill Erbey will step down as an officer and director of Ocwen, as well as from the boards of Ocwen’s related companies.
- The Operations Monitor will review Ocwen’s current committees of the Board of Directors and will consult with the Board relating to the committees. This will include determining which decisions should be committed to independent directors’ oversight, such as approval of transactions with related parties, transactions to acquire mortgage servicing rights, sub-servicing rights or otherwise to increase the number of serviced loans and new relationships with third-party vendors.
- The Board will work closely with the Operations Monitor to identify operations issues and ensure that they are addressed. The Board will consult with the Operations Monitor to determine whether any member of senior management should be terminated or whether additional officers should be retained to achieve the goals of complying with this Consent Order.
MSR Purchases
- Ocwen may acquire MSRs upon (a) meeting benchmarks specified by the Operations Monitor relating to Ocwen’s onboarding process for newly acquired MSRs and its ability to adequately service newly acquired MSRs and its existing loan portfolio, and (b) the DFS’s approval, not to be unreasonably withheld.
- These benchmarks will address the compliance plan, a plan to resolve record-keeping and borrower communication issues, the reasonableness of fees and expenses in the servicing operations, development of risk controls for the onboarding process and development of a written onboarding plan assessing potential risks and deficiencies in the onboarding process.
