FEB 12, 2014 3:08pm ET

Lawsky Bashes Ocwen, Says Servicer's Growth 'Raises Red Flags'

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New York's banking regulator Benjamin Lawsky unleashed a verbal assault on nonbank servicer Ocwen Financial Wednesday, saying the company's explosive growth "raises red flags," and that its use of technology to better handle distressed loans is "too good to be true."

Speaking at the annual meeting of the New York Bankers Association, Lawsky said Ocwen's public documents make "for startling reading." He sees "corners being cut," by nonbank servicers that have touted their ability to help distressed borrowers.

"We have serious concerns that some of these nonbank mortgage servicers are getting too big, too fast," Lawsky told New York bankers who were meeting at the Waldorf Astoria. "We see far too many struggling homeowners getting caught in a vortex of lost paperwork, unexplained fees and avoidable foreclosures."

Last week, Ocwen put an indefinite hold on its $2.7 billion purchase of servicing rights from Wells Fargo after Lawsky raised concerns about the Atlanta-based servicer's growth.

Yet Lawsky refused to cite Ocwen by name. Instead, he referred to a public document filed with the Securities and Exchange Commission by "a nonbank servicer" that boasted to investors that it was still "in the middle innings of cleaning up the human wreckage left by the mortgage meltdown."

Ocwen has used the "middle innings" reference in presentations in January and in December to analysts and investors.

Lawsky also cited Ocwen's comments to investors that it has identified $400 billion in servicing rights that it plans to acquire in the next 12 to 18 months, and that up to $1 trillion in servicing will change hands in the next few years.

But he took particular umbrage by Ocwen's assertions that it can service delinquent loans at a cost that is 70% lower than the rest of the industry, calling into question its entire servicing model.

"Those kinds of cost-saving claims bear special scrutiny," Lawsky said. "Regulators have to ask whether the purported efficiencies at nonbank mortgage servicers are too good to be true."

As superintendent of New York's Department of Financial Services, Lawsky has jurisdiction over Ocwen as a licensed mortgage banker in New York. He also has additional insight into Ocwen's operations because in Dec. 2012, Ocwen agreed to an independent monitor as part of a consent order that cleared the path for its 2011 acquisition of Litton Loan Servicing from Goldman Sachs.

Lawsky made specific references to servicers' difficulty in handling the transfer of documents and dealing with distressed borrowers.

"We see electronic loan files strewn around the globe with no one who knows how to pull them together," Lawsky said. "We see a virtual potpourri of computer systems containing critical borrower information, but no one who knows how to extract that information at the right time and for the right purpose."

Kevin Barker, an analyst at Compass Point, says it is uncertain whether Lawsky is primarily concerned about Ocwen's ability to take on more distressed loans or if it the concerns relate to past servicing practices or both.

"It's not easy to transfer the servicing and boarding of all these loans because you have to think about what kind of shape the files are in when they get them," Barker says.

Lawsky has previously used his authority to hold up past transfers of mortgage servicing to Ocwen and to demand concessions such as the independent monitor. Still, servicers are concerned whether his actions will set a precedent that upends other servicing transfers involving New York loans.

"Regulators should not just be rubber stamps," Lawsky told bankers.

Comments (7)
As some one who has dealt with Ocwen both on a personal level with my personal mortgages and professionally doing short sales for clients I can tell you that this is another company that is taking advantage of homeowners. From having to pay to make a payment on their online website after 10 days, to being charged $20 to make the same payment that was free on other servicer's website because I have to call to make the payment after the 10th day plus the normal late fee they have figured out a way to make money in many ways.

When dealing with short sales I have to deal with out of country call centers with different time zones, different language nuances and difficulty in finding whom to escalate to when you do get an answer. Doing short sales is getting more difficult instead of easier as rules that were enacted to "protect" homeowners gets twisted again to benefit the banks or servicer. Sometimes good intentions bring bad results when the rules are actually implemented in "real time".

I don't think its right that I have to pay additional fees to make a mortgage payment on top of the late fee that is included in my loan documents. Those $10 and $20 charges add up when you have the type of volume that Ocwen is going for. Another nail in the coffin to homeowners and the professionals that try to assist them through their various options.

Posted by Evelyn S | Wednesday, February 12 2014 at 4:17PM ET
I have 2 mortgages serviced by Ocwen and have originated residential loans for 39 years. I would consider their servicing to be marginal at best. The process is so much more important than the results. I have experienced the same nickel dime charges as Evelyn S.
Posted by craig s | Wednesday, February 12 2014 at 5:41PM ET
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