Ocwen replacing embattled servicing system with Black Knight's MSP

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Ocwen Financial Corp. will move its servicing portfolio to Black Knight's LoanSphere MSP system of record, following years of regulatory scrutiny of its existing technology and processes.

The move comes as the embattled servicer continues to settle allegations by state regulators and the Consumer Financial Protection Bureau that its technology is ineffective at even the most basic of servicing tasks, leading to Ocwen sending inaccurate monthly statements to borrowers, improperly crediting payments, and mishandling taxes and insurance in escrow accounts.

Ocwen's existing proprietary system of record is outsourced and operated by Altisource Portfolio Solutions, a Luxembourg-based spinoff of Ocwen founded by William Erbey, Ocwen's former chairman. Switching to Black Knight puts Ocwen on the same core servicing system that's used to manage more than half of all outstanding U.S. mortgages, including the servicing units of JPMorgan Chase, Quicken Loans and Wells Fargo. Bank of America, which briefly used Countrywide's proprietary servicing system after acquiring the failed lender, began moving its loans back onto MSP last year.

"Over a multiyear period, Ocwen undertook a detailed review of industry leading mortgage loan serving systems," John Lovallo, an external spokesperson for Ocwen, said in a statement. "Our decision to transition to the LoanSphere MSP loan servicing system is part of Ocwen's corporate objectives of reducing costs, streamlining the technology product suite, and creating efficiencies within the organization."

The seven-year agreement will see Ocwen move its residential mortgages, home equity loans and lines of credits to MSP, as well as adopt a number of default management and loss mitigation modules that complement the system.

Ocwen's most recent regulatory settlement was with Hawaii's Division of Financial Institutions, according to a Securities and Exchange Commission filing Ocwen made Wednesday. Ocwen has recently resolved complaints by 22 jurisdictions, has others outstanding with nine regulatory agencies and two states attorneys general, the filing said.

Regulatory complaints about Ocwen's servicing system go back years. Ocwen initially attempted to use workarounds for its system, but it did not appease regulators, including the CFPB, which has been investigating the relationship between the two companies. A settlement with the New York State Department of Financial Services forced Erbey to resign from Ocwen and four related companies, including Altisource, in 2014.

As a standalone company, Altisource has worked to expand its customer base to reduce its dependence on Ocwen for revenue. Losing Ocwen as a system of record client may further shareholder concerns about Altisource's future outlook.

In addition to announcing the Ocwen deal, Black Knight reported net earnings of $14.7 million off revenue of $263.8 million for the third quarter of 2017, up from net earnings of $11.2 million a year ago.

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Servicing systems Default management REO Loss mitigation Mortgage technology Compliance State regulators Ocwen Financial Black Knight CFPB