Image: Bloomberg
Image: Bloomberg

Ocwen Financial Corp. will no longer require distressed borrowers involved in litigation with the mortgage servicer to sign nondisparagement agreements as a condition for receiving a loan modification, New York's banking regulator said Wednesday.

"In discussions with our department, Ocwen has agreed to no longer seek gag rules as part of settlement agreements or loan modifications with borrowers, "said Benjamin Lawsky, superintendent of New York's Department of Financial Services, in an e-mailed statement.

The shift in Ocwen's policy comes two weeks after Lawsky said his office would "immediately" investigate allegations that the company and others require borrowers who have filed legal claims against their loan servicer to sign nondisclosure agreements in order to receive a workout. In some cases, borrowers' attorneys are also asked to sign similar agreements, which can also include requiring borrowers to forfeit their right to sue the servicer again.

Ocwen maintains that the legal agreements comprised a small fraction of their total loan modifications.

"Our agreement with the DFS deals with the highly unusual situation where there is a legal settlement agreement with a borrower, representing a fraction of 1% of our portfolio," a company spokesperson said via email.

As part of the deal, first reported by Reuters, the Atlanta-based mortgage servicer will no longer enforce its existing nondisparagement agreements with borrowers.

Lawsky has put a spotlight on nonbank servicers, and Ocwen in particular, in recent months. In a May speech before the Mortgage Bankers Association, he said that he intends to expand his department's oversight of the industry, citing concerns that borrowers are "at risk of becoming fee factories."

Earlier this year, Lawsky put a hold on Ocwen's plans to purchase $2.7 billion in mortgage servicing rights, saying in a public speech that the servicer's rapid growth "raises red flags."

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