WASHINGTON, D.C. — The Consumer Financial Protection Bureau (CFPB) today sued one of the country’s largest nonbank mortgage loan servicers, Ocwen Financial Corporation, and its subsidiaries for failing borrowers at every stage of the mortgage servicing process. The Bureau alleges that Ocwen’s years of widespread errors, shortcuts, and runarounds cost some borrowers money and others their homes. Ocwen allegedly botched basic functions like sending accurate monthly statements, properly crediting payments, and handling taxes and insurance. Allegedly, Ocwen also illegally foreclosed on struggling borrowers, ignored customer complaints, and sold off the servicing rights to loans without fully disclosing the mistakes it made in borrowers’ records. The Florida Attorney General took a similar action against Ocwen today in a separate lawsuit. Many state financial regulators are also independently issuing cease-and-desist and license revocation orders against Ocwen for escrow management and licensing issues today.
"Ocwen has repeatedly made mistakes and taken shortcuts at every stage of the mortgage servicing process, costing some consumers money and others their homes," said CFPB Director Richard Cordray. "Borrowers have no say over who services their mortgage, so the Bureau will remain vigilant to ensure they get fair treatment."
Ocwen, headquartered in West Palm Beach, Fla., is one of the nation’s largest nonbank mortgage servicers. As of Dec. 31, 2016, Ocwen serviced almost 1.4 million loans with an aggregate unpaid principal balance of $209 billion. It services loans for borrowers in all 50 states and the District of Columbia. A mortgage servicer collects payments from the mortgage borrower and forwards those payments to the owner of the loan. It handles customer service, collections, loan modifications, and foreclosures. Ocwen specializes in servicing subprime or delinquent loans.
The CFPB uncovered substantial evidence that Ocwen has engaged in significant and systemic misconduct at nearly every stage of the mortgage servicing process. The CFPB is charged with enforcing the Dodd-Frank Wall Street Reform and Consumer Protection Act, which protects consumers from unfair, deceptive, or abusive acts or practices, and other federal consumer financial laws. In addition, the Bureau adopted common-sense rules for the mortgage servicing market that first took effect in January 2014. The CFPB’s mortgage servicing rules require that servicers promptly credit payments and correct errors on request. The rules also include strong protections for struggling homeowners, including those facing foreclosure. In its lawsuit, the CFPB alleges that Ocwen:
- Serviced loans using error-riddled
information: Ocwen uses a proprietary system called REALServicing to
process and apply borrower payments, communicate payment information to
borrowers, and maintain loan balance information. Ocwen allegedly loaded
inaccurate and incomplete information into its REALServicing system. And even
when data was accurate, REALServicing generated errors because of system
failures and deficient programming. To manage this risk, Ocwen tried manual
workarounds, but they often failed to correct inaccuracies and produced still
more errors. Ocwen then used this faulty information to service borrowers’
loans. In 2014, Ocwen’s head of servicing described its system as “ridiculous”
and a “train wreck.”
- Illegally foreclosed on homeowners: Ocwen
has long touted its ability to service and modify loans for troubled borrowers.
But allegedly, Ocwen has failed to deliver required foreclosure protections. As
a result, the Bureau alleges that Ocwen has wrongfully initiated foreclosure
proceedings on at least 1,000 people, and has wrongfully held foreclosure
sales. Among other illegal practices, Ocwen has initiated the foreclosure
process before completing a review of borrowers’ loss mitigation applications.
In other instances, Ocwen has asked borrowers to submit additional information
within 30 days, but foreclosed on the borrowers before the deadline. Ocwen has
also foreclosed on borrowers who were fulfilling their obligations under a loss
- Failed to credit borrowers’ payments: Ocwen
has allegedly failed to appropriately credit payments made by numerous
borrowers. Ocwen has also failed to send borrowers accurate periodic statements
detailing the amount due, how payments were applied, total payments received,
and other information. Ocwen has also failed to correct billing and payment
- Botched escrow accounts: Ocwen manages
escrow accounts for over 75 percent of the loans it services. Ocwen has
allegedly botched basic tasks in managing these borrower accounts. Because of
system breakdowns and an over-reliance on manually entering information, Ocwen
has allegedly failed to conduct escrow analyses and sent some borrowers’ escrow
statements late or not at all. Ocwen also allegedly failed to properly account
for and apply payments by borrowers to address escrow shortages, such as
changes in the account when property taxes go up. One result of this failure
has been that some borrowers have paid inaccurate amounts.
- Mishandled hazard insurance: If a
servicer administers an escrow account for a borrower, a servicer must make
timely insurance and/or tax payments on behalf of the borrower. Ocwen, however,
has allegedly failed to make timely insurance payments to pay for borrowers’
home insurance premiums. Ocwen’s failures led to the lapse of homeowners’
insurance coverage for more than 10,000 borrowers. Some borrowers were pushed
into force-placed insurance.
- Bungled borrowers’ private mortgage
insurance: Ocwen allegedly failed to cancel borrowers’ private mortgage
insurance, or PMI, in a timely way, causing consumers to overpay. Generally,
borrowers must purchase PMI when they obtain a mortgage with a down payment of
less than 20 percent, or when they refinance their mortgage with less than 20
percent equity in their property. Servicers must end a borrower’s requirement
to pay PMI when the principal balance of the mortgage reaches 78 percent of the
property’s original value. Since 2014, Ocwen has failed to end borrowers’ PMI
on time after learning information in its REALServicing system was unreliable
or missing altogether. Ocwen ultimately overcharged borrowers about $1.2
million for PMI premiums, and refunded this money only after the fact.
- Deceptively signed up and charged borrowers
for add-on products: When servicing borrowers’ mortgage loans, Ocwen
allegedly enrolled some consumers in add-on products through deceptive
solicitations and without their consent. Ocwen then billed and collected
payments from these consumers.
- Failed to assist heirs seeking foreclosure
alternatives: Ocwen allegedly mishandled accounts for
successors-in-interest, or heirs, to a deceased borrower. These consumers
included widows, children, and other relatives. As a result, Ocwen failed to
properly recognize individuals as heirs, and thereby denied assistance to help
avoid foreclosure. In some instances, Ocwen foreclosed on individuals who may
have been eligible to save these homes through a loan modification or other
loss mitigation option.
- Failed to adequately investigate and respond
to borrower complaints: If an error is made in the servicing of a mortgage
loan, a servicer must generally either correct the error identified by the
borrower, called a notice of error, or investigate the alleged error. Since
2014, Ocwen has allegedly routinely failed to properly acknowledge and
investigate complaints, or make necessary corrections. Ocwen changed its policy
in April 2015 to address the difficulty its call center had in recognizing and
escalating complaints, but these changes fell short. Under its new policy, borrowers
still have to complain at least five times in nine days before Ocwen
automatically escalates their complaint to be resolved. Since April 2015, Ocwen
has received more than 580,000 notices of error and complaints from more than
300,000 different borrowers.
- Failed to provide complete and accurate loan
information to new servicers: Ocwen has allegedly failed to include
complete and accurate borrower information when it sold its rights to service
thousands of loans to new mortgage servicers. This has hampered the new
servicers’ efforts to comply with laws and investor guidelines.
The Bureau also alleges that Ocwen has failed to remediate borrowers for the harm it has caused, including the problems it has created for struggling borrowers who were in default on their loans or who had filed for bankruptcy. For these groups of borrowers, Ocwen’s servicing errors have been particularly costly.
Through its complaint, filed in federal district court for the Southern District of Florida, the CFPB seeks a court order requiring Ocwen to follow mortgage servicing law, provide relief for consumers, and pay penalties. The complaint is not a finding or ruling that the defendants have actually violated the law.
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.