Ocwen Financial and its subsidiaries faced a slew of accusations from federal and state regulators on Thursday, as the Consumer Financial Protection Bureau and Florida accused it of widespread servicing errors, while 20 states led by North Carolina filed separate cease-and-desist orders against the firm for improper handling of consumer escrow accounts.
Taken together, the actions sent Ocwen's stock price tumbling 55% to $2.43 a share by midday, and raised questions about whether the firm could survive.
Ray Grace, North Carolina's commissioner of banks, said in a legal filing that the cost to reconcile the firm's mistakes on escrow accounts meant that "Ocwen continuing as a going concern would be in doubt."
The actions cap years of state and federal investigations into Ocwen. The once highflying mortgage servicer grew quickly after the financial crisis only to get caught by regulators for allegedly violating mortgage servicing standards. The CFPB said it had uncovered "substantial evidence" that Ocwen has engaged in significant and systemic misconduct "at nearly every stage of the mortgage servicing process."
“Ocwen has repeatedly made mistakes and taken shortcuts at every stage of the mortgage servicing process, costing some consumers money and others their homes,” CFPB Director Richard Cordray said in a press release.
Ocwen called the CFPB lawsuit "politically motivated" and vowed to fight in court.
“Ocwen strongly disputes the CFPB’s claim that Ocwen’s mortgage loan servicing practices have caused substantial consumer harm. In fact, just the opposite is true," said John Lovallo, an Ocwen spokesman. "The substantive allegations in today’s suit are inaccurate and unfounded. Indeed, the company is unaware of the CFPB conducting any detailed review of Ocwen’s loan servicing files. Rather, the CFPB suit is primarily based on the CFPB’s flawed review of data and its self-serving conclusion about isolated instances where Ocwen self-identified ways we can do better."
The CFPB alleged that Ocwen botched basic servicing functions by sending inaccurate monthly statements to borrowers, improperly crediting payments, and mishandling taxes and insurance in escrow accounts.
The CFPB claims Ocwen sold mortgage servicing rights to other servicers without fully disclosing or correcting errors, in violation of CFPB servicing standards enacted in 2014. The agency claimed that Ocwen loaded inaccurate and incomplete information into a proprietary technology system and used the faulty information to service loans. Ocwen tried "manual workarounds" but often failed to correct inaccuracies and produced even more errors.
Cara Petersen, a CFPB deputy enforcement director, did not discuss why settlement negotiations had broken down. Speaking on a call with reporters Thursday, Petersen said that Ocwen's former head of servicing wrote in a 2014 email that its servicing platform was "ridiculous" and a "train wreck." She said that Ocwen had initiated improper foreclosure actions against at least 1,000 consumers.
Since 2015, Ocwen has received more than 580,000 complaints, from more than 300,000 different borrowers, the CFPB said.
Ocwen said that it believes the CFPB’s allegations "concern only a small percentage of Ocwen’s 1.3 million customers, and Ocwen has repeatedly assured the CFPB that it will remediate, and in many instances already has remediated, any legal harm experienced by these customers."
The CFPB's lawsuit, filed in U.S. District Court for the Southern District of Florida, also claims Ocwen mishandled insurance payments that led to the lapse of coverage for more than 10,000 borrowers, some of whom were pushed into force-placed insurance. Ocwen also allegedly failed to cancel borrowers' private mortgage insurance and overcharged borrowers roughly $1.2 million, though the company did refund the money after the fact, the CFPB said.
The CFPB also alleged that Ocwen deceptively signed up and charged borrowers for add-on products and failed to assist the heirs of deceased borrowers, known as successors-in-interest, resulting in some foreclosures.
According to the CFPB, Ocwen, of West Palm Beach, Fla., violated the Consumer Protection Act, which protects consumers from unfair, deceptive, or abusive acts or practices, and failed to comply with mortgage servicing rules that went into effect in 2014. Those rules require that servicers promptly credit payments, correct errors and provide protections for struggling homeowners, including those facing foreclosure.
Florida Attorney General Pam Bond and Florida's Commissioner of Financial Regulations filed its lawsuit against Ocwen and two mortgage servicing subsidiaries Ocwen Loan Servicing and Ocwen Mortgage Servicing for filing illegal foreclosures and other issues.
The CFPB and Florida's actions came within an hour after 20 states, led by North Carolina, filed cease-and-desist orders against the firm and its units, accusing them of mishandling consumer escrow accounts. Those orders prohibit the company from acquiring new servicing rights and the origination of new loans.
"Ocwen has consistently failed to correct deficient business practices that cause harm to borrowers,” said Grace, the North Carolina commissioner. “We cannot allow this to continue.”
The states also said Ocwen had operated unlicensed mortgage servicing facilities in certain states over a period of years.
Ocwen has been making a push to wrap up all of its outstanding legal and regulatory issues but the latest actions could cripple the company. Ocwen was already subject to a 2013 consent order by the CFPB requiring it to fix its servicing practices.
Ocwen also had been prohibited from purchasing mortgage servicing rights — which it needs to do to grow its business — because of past consent orders in New York and California.
In February, Ocwen agreed to pay $25 million for borrower restitution and other costs, and make loan modifications to regulators in California. In March, it entered into a consent order with the New York State Department of Financial Services that terminated a third-party monitor appointed in 2014. New York regulators have said they will determine at a later date whether Ocwen can resume purchases of servicing rights.