Ocwen Financial came under fire Tuesday from Joseph A. Smith, the monitor of the national mortgage settlement, after concerns of conflicts of interest were raised by an unnamed whistleblower.
Smith said in a report that he could not rely on Ocwen's internal review process and had hired independent accounting firm McGladrey to test Ocwen's work to ensure compliance with the national mortgage settlement.
The whistleblower alleged that an internal review group created to test Ocwen's compliance with mortgage servicing standards was not independent. The whistleblower said the group was not properly selecting random samplings of loan files to be tested, Smith said.
"I informed Ocwen that I did not have confidence that the internal review group was independent," Smith said. "The process relies on the company judging itself first, so we have to have the work redone."
Ocwen, the country's largest nonbank mortgage servicer, has been under intense regulatory scrutiny over the past year from Benjamin Lawsky, the superintendent of New York's Department of Financial Services, for the backdating of thousands of foreclosure letters to borrowers.
The firm took a $100 million charge in the third quarter for a potential settlement with Lawsky for the back-dating of foreclosure letters.
Ron Faris, Ocwen's CEO, said the company is working closely with Smith.
"We will continue to support the monitor's efforts to ensure that we are fully compliant with all aspects of the national mortgage settlement," Faris said in a press release.
Smith also asked Ocwen to provide an explanation of the back-dating issue and any possible effects it could have on the monitoring of the settlement, which requires testing for 300 servicing standards including correspondence to consumers. McGladrey also will independently determine the scope of the back-dating problem and retest timeline metrics.
"From the time we got the whistleblower's report, we did a lot of work to determine if the whistleblower was for real and trustworthy," said Smith. "The whistleblower did not call out the backdating of documents but whether the populations pulled for testing was appropriate."
The servicers' internal review groups are required to be independent from management and to take statistically valid loan samples of loan files and test them to ensure compliance.
After being contacted by the whistleblower, Smith sent a team of attorneys and forensic accountants to interview nine Ocwen officers and review 250,000 documents, he said. He also received assurances from Ocwen that they would not try to identify the whistleblower.
Smith has since created an ethics hotline to allow employees of the six servicers covered by the 2012 national mortgage settlement to anonymously report any problems.
The mortgage settlement with federal regulators and 49 state attorneys general resulted from servicers' robo-signing foreclosure documents and other lapses.
The monitor's fourth compliance report covered the first and second quarters of 2014. In the first quarter, Bank of America failed two tests including evaluating the timeliness, accuracy and completeness of pre-foreclosure initiation letters, and notifying borrowers within five days of the receipt of a loan modification application of any missing or incomplete documents.
In the first quarter, Citigroup also failed one test to determine if a servicer approved or denied a loan mod within 30 days' receipt of all documents, and if the borrower was told of the denial within 10 days of the decision.
Separately, Smith released a report on JPMorgan Chase's progress toward completing a separate settlement that it packaged and sold shoddy mortgages to investors. That settlement requires that Chase give $4 billion in relief to consumers by 2017. The relief can be in the form of principal forgiveness, rate reductions or refinancings or lending to low and moderate-income consumers.
So far, JPMorgan Chase received credit for providing roughly $868 million in consumer relief from October 2013 to June 2014.