Today the Consumer Financial Protection Bureau, authorities in 49 states, and the District of Columbia are filing a proposed court order requiring the country’s largest nonbank mortgage servicer to compensate consumers for years of systemic and significant servicing errors. Ocwen Financial Corporation and its subsidiary, Ocwen Loan Servicing, must refund $125 million to people who have already lost their homes. And they must provide $2 billion in relief to current homeowners who are underwater and in danger of losing their homes.
The mortgage market is the single largest consumer financial market in the United States, with consumers owing about $10 trillion. Mortgage servicers, who bear responsibility for managing these loans, play a central role in the lives of homeowners. They are the link between a mortgage borrower and a mortgage owner. They collect and apply payments. They work out modifications to the loan terms. And they handle the difficult process of foreclosure. Importantly, consumers cannot take their business elsewhere by voting with their feet. Homeowners are stuck with their mortgage servicer, no matter how good or bad that servicer may turn out to be.
Ocwen specializes in servicing subprime or delinquent loans and it has been greatly expanding its business in the years since the housing collapse. Today it is not only the largest nonbank servicer, but also the fourth-largest mortgage servicer overall in this country. It has acquired smaller competitors such as Homeward Residential and Litton Loan Servicing. And it has taken on servicing duties for some of the big banks. Today its customers number in the millions.
Because Ocwen bought the mortgage servicing rights to millions of existing accounts, for many borrowers Ocwen was not their first servicer. For these struggling homeowners, the Consumer Bureau believes that too often trouble began as soon as a loan transferred to Ocwen, with Ocwen failing to honor trial modifications that were agreed upon by previous servicers.
We believe that Ocwen violated federal consumer financial laws at every stage of the mortgage servicing process. In our complaint filed in federal district court today, we allege that Ocwen took advantage of consumers with servicing shortcuts and unauthorized fees. It misled consumers about alternatives to foreclosures. It provided false or misleading information to consumers about the status of their accounts. It denied loan modifications for eligible homeowners. And it sent documents through the courts after they were robo-signed during the foreclosure process. After examining the potential violations, we have concluded that Ocwen made troubled borrowers even more vulnerable to foreclosure.
So today’s order, to which Ocwen has agreed, requires Ocwen to provide $125 million in refunds to consumers who lost their home to foreclosure while being serviced by Ocwen, Homeward Residential Holdings, or Litton Loan Servicing between 2009 and 2012. In addition, over a three-year period, Ocwen must complete sustainable loan modifications that result in a reduction in principal totaling $2 billion for homeowners who are underwater and struggling to pay off their mortgages. This will bring relief to Ocwen’s victims and it will improve conditions in the mortgage market by reducing the number of foreclosures.
The Consumer Bureau’s new mortgage servicing rules have been written to stop problems like the ones that occurred at Ocwen. And if Ocwen’s practices had occurred under our new rules, even more violations would have been identified. But this action against Ocwen is not and could not be based on our rules that are not yet in effect. Rather, it is based on the provisions of the Dodd-Frank Act that prohibit servicers from engaging in activity that is unfair and deceptive – which is exactly what Ocwen did.
In less than a month, the Bureau’s new mortgage servicing rules will take effect and Ocwen, like other servicers, will be subject to the new standards. In many ways, these new rules overlap with the Ocwen order. Both set forth specific rules of the road about handling loss mitigation applications. Both mitigate the harms of dual tracking by prohibiting borrowers from being referred to foreclosure before an application can be reviewed. Both demand prompt crediting of payments. Both protect borrowers from unnecessary force-placed insurance charges. And both require servicers to take steps to ensure compliance with current state foreclosure laws, including bans against the robo-signing of documents.
But because of its conduct, as described in our complaint, Ocwen will be subject to standards above and beyond the rest of the industry. For example, the proposed court order aims to solve problems surrounding Ocwen’s handling of loan modifications in transferred loans. This includes a requirement that when consumers have loss mitigation requests pending with a prior servicer within sixty days of any transfer to Ocwen, Ocwen must resolve the requests. This includes a requirement that Ocwen cannot initiate or continue a foreclosure process until it has done so.
Our order also ensures that Ocwen will adhere to these significant new homeowner protections through greater oversight and a court mandate. A special independent monitor will have the authority to require Ocwen’s compliance and oversee the settlement. In addition, like the rest of the mortgage servicing industry, Ocwen will have to beef up its standards to ensure that when any of its consumers call for help that they get regular and dependable assistance.
Many of Ocwen’s practices described in today’s order are the same kind of practices that were also the subject of the 2012 National Mortgage Settlement involving the five largest mortgage servicers at that time. But while some of Ocwen’s portfolio was part of the settlement, the substantial majority of it was not, and most of its customers were not previously entitled to relief. Today’s action extends the standards of that settlement to the full portfolio of the largest nonbank servicer. In fact, the monitor of the National Mortgage Servicing Settlement has agreed to oversee the implementation and compliance of today’s agreement through the Office of Mortgage Settlement Oversight . This result furthers the Consumer Bureau’s objective of extending its oversight over the entire mortgage servicing market, including both bank and nonbank participants.
Today’s order came about through a coordinated partnership with state financial regulators and state attorneys general. Both the Consumer Bureau and the 49 state attorneys general who are signatories to the order can enforce its terms. In addition, state regulators can enforce the terms of concurrent administrative orders that they are also issuing against Ocwen.
I want to thank our 49 state partners and the District of Columbia for their integral role in reaching today’s result. I would also like to thank the Federal Trade Commission, which first initiated the investigation into Ocwen’s servicing practices and whose work formed the backbone of the Bureau’s own investigation into these matters.
This case stands as a landmark for the new Consumer Bureau, since it is the first time we have partnered with virtually all state attorneys general as well as state regulators. Working together toward the singular goal of protecting consumers, we intend to improve the performance of the mortgage servicing industry for all homeowners, responsible businesses, and the economy as a whole.
In many ways, this country is still emerging from the financial crisis today, more than five years after it crested. But for our housing market to fully recover, responsible homeowners must have opportunities to stay in their homes, people must be treated fairly, and mortgage servicers must be held accountable for following consumer financial laws. We are not out of the woods yet and we will not be until all mortgage servicers understand that they must step up and toe the line. Thank you.
*This version has been updated from an earlier version.
The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit consumerfinance.gov.