Plaintiffs Aim for Ocwen

Suing subprime firms for "predatory" servicing is a growth industry and class-action attorneys appear to have set their sites on a new target: Ocwen Federal FSB of West Palm Beach, Fla.

Several lawsuits have been filed in California accusing the company of abusive and illegal servicing practices. In general, Ocwen is accused of failing to post monthly mortgage payments properly, charging inappropriate late fees, prematurely referring accounts to collections, and forcing homeowners into default as part of a scheme to generate fee income.

The federally chartered thrift disputes all the allegations and says it has taken steps to improve its servicing operation. "We believe the allegations to be baseless and without merit," Ocwen general counsel Paul Koches told Mortgage Servicing News. "And we will be vigorously defending that in court." (Mr. Koches represents the thrift and its parent, Ocwen Financial Corp., which also is based in West Palm Beach.)

The same California attorneys that are after Ocwen also brought claims of abusive servicing practices against Fairbanks Capital Corp., Salt Lakes City, which recently agreed to a $40 million settlement with federal regulators and to pay $15 million to settle several class-action lawsuits.

Once the FTC announced the Fairbanks settlement, it was widely expected that other subprime servicers would face similar scrutiny.

Consumer attorneys believe the incentive system built into subprime servicing encourages companies to generate fees by pushing loans into default, as opposed to arranging workouts when borrowers get into trouble.

"I think Fairbanks took it to the absolute extreme, which is why they got spanked," said Ira Rhinegold, executive director of the National Association of Consumer Advocates. "I don't think Ocwen and some of the others who are engaged in subprime servicing are much better," he added.

Unlike Fairbanks, Ocwen has a federal regulator, the Office of Thrift Supervision, which has been monitoring its servicing operation.

"We have been working for some time very closely with Ocwen to address the number of concerns related to their servicing of subprime loans," OTS spokesman Kevin Petrasic said.

Ocwen's practices are "extremely similar" to Fairbanks', according to Niall McCarthy, an attorney with the Burlingame, Calif., law firm of Cotchett, Pitre, Simon & McCarthy. Mr. McCarthy filed a class-action lawsuit against the Ocwen Federal Bank in the U.S. District Court in Los Angeles on Dec. 29.

Ocwen "engages in a systematic and deliberate unlawful scheme to cheat homeowners out of millions of dollars in bogus and illegal fees and charges," according to the lawsuit.

The lawsuit alleges that the plaintiffs, Allie and Jerry Maddox, lost their Bend, Ore., home in foreclosure because of Ocwen's servicing practices. After losing their home, the Maddox's moved to California to restart their life.

Mr. McCarthy noted, however, there are a couple of unique things about the way the federally chartered thrift operates that are different from Fairbanks. For instance, Ocwen assesses late fees prior to the date the payment is due, he said in a telephone interview.

If the monthly payment is due on the 17th of month, Ocwen charges a late fee on the 15th or 16th even if the payment comes in on the 17th. "That is exactly what happened to our client," he said. Fairbanks would get a payment on the 15th and not post it for three days - then charge a late fee.

Ocwen said it uses an independent lockbox provider that is required to process all payments within 24 hours for automatic posting.

Another problem at Ocwen is the failure to respond to their customers, Mr. McCarthy said, particularly for requests for payoffs and efforts to avoid foreclosure. "We get all types of phone calls from people who say there is absolutely no response whatsoever when they are trying to arrange a buyout or some kind of a workout of the foreclosure."

Even if they get in contact with an Ocwen representative - they are not responsive. The response is "we are not going to work with you" or "we don't want the money," Mr. McCarthy said. "That is downright cruel when someone is trying to save their home."

Ocwen said it employs a "consultative approach to customer relations where we seek a mutually satisfactory resolution of the issues."

Ocwen also said it leads the industry with an 80% delinquency resolution rate. "This means that in eight out of 10 severely delinquent loans, we are able to achieve a resolution in which the borrower avoids losing their home to a foreclosure."

Meanwhile, attorney Daniel Mulligan filed a class action against Ocwen in the U.S. District Court in San Francisco on Dec. 11.

The complaint - in Geneva Spires v. Ocwen - alleges that the servicer collects late fees when payments are on time and charges for force-placed homeowners insurance when the property is already insured.

Once a loan goes into default, Ocwen allegedly imposes and collects fees for property inspections, appraisals and broker price

opinions in excess of the costs and for services not performed.

"Specifically, Ocwen has engaged in a pattern and practice of charging unwarranted attorney's fee for properties it has erroneously categorized as being in default," the complaint says.

The partner at Jenkins & Mulligan in San Francisco also was involved in Fairbanks litigation and like Mr. McCarthy, he is one of the four co-lead counsels in the consolidated Fairbanks case. The U.S District Court in Boston is expected to grant final approval to the $55 million Fairbanks settlement in May.

In a separate lawsuit, Mr. Mulligan sued Ocwen in December 2002, alleging the subprime servicer charges unwarranted attorney fees (usually $95) when homeowners reinstate their loans. The case, which is before a state court, is currently in discovery and a hearing on class certification is scheduled for May.

Another San Francisco law firm, Lieff, Cabraser, Heimann & Bernstein, has file a class-action lawsuit against Ocwen in the state Superior Court (Alameda County).

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