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

'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. Image: Bloomberg News

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)
What Mr. Lawsky is doing makes me think
Posted by Steve P | Friday, February 14 2014 at 11:06AM ET
Of course, Ocwen can do the servicing for 70% less. They outsource most of the jobs to India!
Posted by Myra B | Thursday, February 13 2014 at 7:17PM ET
That is a very good question Rick H.. I have submitted a complaint with the CFPB but so far they seem to be following the same SOP as the OTS and OCC. They just forward mail. I filed and submitted evidence to the OTS and OCC on four occasions and they just forwarded the complaints to the servicer, the servicer would respond that customer service is their top priority, etc. and then the OTS and OCC would send me the servicer's response along with a letter thanking me for letting them be of assistance.

It is somewhat comical that later after Tom Miller, Iowa Attorney General, was appointed to lead the Mortgage Fraud Task Force, I prepared and sent his office a complete set of documentation proving mortgage fraud along with a copy of my complaints to the U.S. government agencies. His office replied that because I was not a resident of Iowa they forwarded my complaint to the Virginia Dept of Agriculture and thanked me for letting them be of assistance. The Virginia Dept of Agriculture responded that they had forwarded my complaint to the Virginia Attorney Generals Office who responded saying that in my complaint I mentioned having filed a complaint with the OTS and OCC and they were the best arbiter of this issue. And of course they thanked me for letting them be of assistance.

My complaint was in part that the people at the OTS and OCC weren't doing their jobs and apparently this and the obvious mortgage fraud were not relevant to the Mortgage Fraud Task Force.

It is frightening but the attitude of Onewest and Ocwen seems to be that they are above the law and I am beginning to believe it.
Posted by Tim D | Thursday, February 13 2014 at 4:01PM ET
I would think the all great and powerful CFPB would pay more attention to this matter, I still wonder who there protecting, hmmmm....
Posted by Richard H | Thursday, February 13 2014 at 8:18AM ET
I am glad to see Mr. Lawsky question Ocwen's ability to properly handle the volume of loans they are servicing and he is spot on regarding the inability to extract information from the electronic loan files.

My loan was previously serviced by Onewest FSB and they were using the Fast Trak software program provided by Fidelity Information Services that improperly calculated the escrow accounts. The program failed to credit escrow deposits into the escrow account and so the escrow would only grow negatively and claim amounts paid as owed. Even though this was resolved with Onewest in 2012 once the loan was transfered to Ocwen they resumed trying to illegally collect approximately $14,000 for escrow not owed. Ocwen is also claiming that six months payments made to Onewest were not paid even though cancelled checks prove otherwise.

The accounting on just my account is only accurate within a range of $30-$35,000 and unfortunately the opus is on the borrower to get it corrected. Wasn't long ago that banks and mortgage companies were trusted to keep their accounts accurate to the penny but with the electronic files and the servicers apparent reluctance and inability to manually do calculations that has been lost.
Posted by Tim D | Thursday, February 13 2014 at 5:13AM 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
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 dynamicbroker | Wednesday, February 12 2014 at 4:17PM ET
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