This post was originally published on this site
Billionaire Secretary of Commerce Wilbur Ross spent nearly two years on Ocwen Financial’s board of directors after selling Homeward Residential to the once soaring St. Croix, Virgin Islands-based mortgage servicing giant for $750 million in 2012. A year later, Treasury Secretary Steven Mnuchin sold $78 billion worth of mortgage servicing rights to Ocwen while in charge of OneWest Bank, the lucrative crisis-era California bank restructuring bet at the heart of his $300 million fortune.
During those days, Ocwen was a stock market darling that minted founder Bill Erbey a fortune once estimated by Forbes at $2.8 billion, and Mnuchin and Ross were some of the most successful investors picking over the wreckage of the financial crisis.
Now, Mnuchin and Ross cut powerful financial figures in Washington, where tax cuts, trade renegotiation and financial regulatory reform are top of mind. Ocwen, however, has not kept up with its former backers. On Thursday, the firm’s shares were pummeled by new allegations from the Consumer Financial Protection Bureau and State attorneys general of improper and incompetent conduct.
After hitting a peak market capitalization of over $6 billion in 2013, Ocwen’s stock has cratered on account of widespread consumer complaints, regulatory trouble and bondholder lawsuits. Erbey, no longer a billionaire, was kicked to the curb in 2014 by former New York Department of Financial Services superintendent Benjamin Lawsky amid a consent order that alleged wrongdoing in its home foreclosure practices and self-dealing among its complicated web of related entities. That year, Ocwen settled a $2.1 billion suit with 49 states and the CFPB, which stipulated dramatic operational improvements.
And the troubles got worse. In 2015, a California regulator threatened to kick Ocwen out of the state, then its single biggest market. Later, a hedge fund attempted to put Ocwen in default after conjuring up complaints from dozens of big name bondholders.
Since then, Ocwen has stood on the knife’s edge of collapse. Now with renewed regulatory scrutiny, firm’s stock is plunging again and trading at a market capitalization of just under $300 million.
On Thursday afternoon, the Consumer Financial Protection Bureau sued Ocwen, currently the largest servicer of subprime mortgages in the United States, for “failing borrowers at every stage of the mortgage servicing process.” A North Carolina regulator has issued an injunction against Ocwen claiming the company, “has engaged in, or is engaging in, or about to engage in, acts or practices constituting violations of state and federal law.” Florida Attorney General Pam Bondi joined in on the action stating, “Enough is enough. Florida’s distressed Ocwen borrowers should no longer have to endure costly servicing errors and unfair practices.”
These complaints indicate Ocwen may be too troubled to reform and its days as one of the country’s pre-eminent handlers of home mortgages are numbered. In Thursday afternoon trading, Ocwen was falling over 50%, within reach of all-time record lows.
Dismantling the CFPB is on the agenda in the White House, but the still-in-operation regulator continues to scrutinize Ocwen. In a complaint, the CFPB said it sees evidence Ocwen has been unable to remedy years of widespread errors and shortcuts, where borrowers have paid a heavy price for the firm’s incompetence. According to the regulator, Ocwen bugles the most basic elements of servicing a home mortgage, such as sending accurate monthly statements and itemization of taxes and insurance. The company continues to illegally foreclose on struggling American homeowners, it does not respond to customer complaints, and has shirked off home mortgages to other servicers without accurate paperwork, the CFPB says.
“Ocwen has repeatedly made mistakes and taken shortcuts at every stage of the mortgage servicing process, costing some consumers money and others their homes,” Richard Cordray, director of the CFPB, said in a statement. “Borrowers have no say over who services their mortgage, so the Bureau will remain vigilant to ensure they get fair treatment.”
Prior to Thursday’s plunge, investors were beginning to bid up Ocwen’s stock on an expectation that the troubled company could improve its handling of mortgages. Injunctions stipulated the company improve its processes, dramatically increase homeowner assistant and re-write its playbook on foreclosures. Some regulators have been buried in Ocwen’s day-to-day operations — whether they be in India or an island off the the coast of Puerto Rico — to ensure the company can comply with the law. It appears the verdict is that Ocwen is structurally unable to do so.
In a North Carolina examination, regulators found Ocwen could not reconcile cash accounts on escrow and was willfully conducting business in jurisdictions where it does not have proper licenses. “Ocwen’s financial condition was significantly deteriorating,” the North Carolina Commissioner of Banks said on Thursday, citing a correspondence with Ocwen where the company allegedly said it could not fix some operational problems due an estimated $1.5 billion cost, well beyond the company’s financial capacity.
“The public interest will be irreparably harmed by delay in issuing a cease and desist order to Ocwen,” the regulator concluded. In Florida, AGs have filed a federal civil consumer protection lawsuit alleging violations of statutes including the Real Estate Settlement Procedures Act and the Florida Deceptive and Unfair Trade Practices Act.
“Ocwen strongly disputes the CFPB’s claim that Ocwen’s mortgage loan servicing practices have caused substantial consumer harm,” the company said in a press release Thursday. “In fact, just the opposite is true. Ocwen believes its mortgage loan servicing practices have and continue to result in substantial benefits to consumers above and beyond other mortgage servicers. 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,” it added.
Ocwen fully cooperated with the CFPB’s inquiries and was cooperating with the regulator until Thursday suit, it said.
“Ocwen has a responsibility to its customers, shareholders, and employees to vigorously defend the Company against these unfounded claims.”
In its defense, Ocwen said it has granted over 735,000 loan modifications, including approximately 75,000 in 2016 since the crisis. The company claims to be responsible for 20% of all modifications under the U.S. Department of the Treasury Home Affordable Modification Program and is “proud of its corporate-wide commitment to a culture of integrity, transparency, compliance, and service.”
For more on Wall Street’s trouble with mortgage servicing read Forbes’ coverage: