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)
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 would think the all great and powerful CFPB would pay more attention to this matter, I still wonder who there protecting, hmmmm....
Posted by RICK H | Thursday, February 13 2014 at 8:18AM ET
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