Ocwen Financial Corp., which agreed with regulators in December to improve its mortgage servicing, sent Nathan Fitzgerald a notice saying his loan was in default. If he didn’t send a $2,266 check immediately, Ocwen said, it would foreclose on him.
The warning in January shocked Fitzgerald, who said he never missed a payment on his three-bedroom home near Napa, Calif., and sent Ocwen bank records to prove it.
“This is a nightmare,” said Fitzgerald, 53, owner of a real estate and investment firm. “I have spent endless hours on the phone trying to get this fixed, and I’ve gotten nowhere.”
Complaints against Ocwen from borrowers continue to pour in to the Consumer Financial Protection Bureau, showing the magnitude of the firm’s challenges following its December settlement with regulators. After the departure of founder and Chairman William Erbey last month, Ocwen is preparing to sell part of its servicing business to simplify operations. It also needs to overhaul its compliance process and technology to regain the confidence of investors, said Douglas Harter, an analyst at Credit Suisse AG.
“One of the first tasks after Erbey’s departure is making sure they have the right infrastructure in place to catch these mistakes,” Harter said. “They are going to have a long road in rebuilding their reputation with regulators, investors and borrowers.”
Through a spokesman, David Millar at Sard Verbinnen Co., Ocwen said it is aware of Fitzgerald’s complaint.
“If one of our customers has an issue, we want to make sure we hear about it and have an opportunity to address it as quickly as possible,” Ocwen said in an emailed statement. “Ocwen has a number of mechanisms for addressing and resolving borrower inquiries and complaints in a timely manner.”
Kingstown Capital Management, a hedge fund in New York, is betting that Ocwen will rebound. It took a 9.5% stake in Atlanta-based Ocwen on Feb. 2 after its shares plunged 90% from their October 2013 peak. That makes Kingstown the second-largest shareholder after Erbey, 65, who owns 14% of the firm. The hedge fund didn’t respond to requests for comment.
“Management and our board of directors are committed to becoming a better company and servicer,” Ocwen Chief Executive Officer Ronald Faris said in a Feb. 5 statement to shareholders filed with the Securities and Exchange Commission. “We are committed to a culture of integrity, transparency, and accountability. We continue to learn from and improve from the challenges we have faced.”
The servicer’s $150 million settlement in December with the New York Department of Financial Services revealed a company struggling with a mishmash of technology that commonly produced mistakes. Its information technology systems “are a patchwork of legacy systems and those inherited from acquired companies, many of which are incompatible,” according to the consent order signed by Faris.
“Ocwen regularly gives borrowers incorrect or outdated information, sends borrowers backdated letters, unreliably tracks data for investors, and maintains inaccurate records,” according to the consent order. “There are insufficient controls in place either manual or automated to catch all of these errors and resolve them.”
The firm’s priority in keeping costs low Ocwen has about 70% of its employees in India made it difficult to reduce missteps, said Harter, the analyst. Ocwen more than quadrupled its business between 2011 and 2013 by purchasing servicing rights from banks, becoming the largest nonbank mortgage servicer.
“Ocwen always had the lowest cost structure,” said Harter of Credit Suisse. “It appears in hindsight that they didn’t invest enough in operations because of that drive to keep their costs low.”
Faris, 51, boosted spending on compliance following Ocwen’s $2.1 billion settlement with regulators in 2013 and new federal rules that took hold in January 2014. The firm added more than 1,000 employees to risk, audit and compliance departments over the past two years, Faris said on a conference call in December.
Ocwen hired Mark Richards, 41, as vice president of compliance testing in June. Richards had worked at the Treasury Department overseeing compliance reports for servicers participating in federal foreclosure-prevention programs.
In the December consent order with the New York regulator, Ocwen agreed to give residents copies of their loan files on request, provide staffers to help correct any inaccuracies on credit reports and pay for an independent compliance officer to identify changes the company must make.
Faris is also reducing the size of the company to make it more manageable. It will sell mortgages backed by Fannie Mae, Freddie Mac and Ginnie Mae that are more costly to service, the CEO said on the December call. The company has a “competitive advantage” servicing nonagency loans because its technology and strategy are designed for those borrowers, he said.
“We have received strong interest from many eligible buyers,” Faris said in the SEC statement.
Transactions probably will start closing in the second quarter and sales in the current quarter are possible. Ocwen probably will sell $5 billion to $20 billion a month, measured by the total unpaid principal balances of the loans, until the end of 2015, Faris said. Agency mortgages account for about half of Ocwen’s $401 billion loan portfolio.
“They are trying to shrink the size of their portfolio and simplify their operations,” said Kevin Barker, an analyst with Washington-based Compass Point Research Trading LLC. “Ocwen is going to look a lot different down the road than it looks today.”
While Ocwen revamps its operations, complaints from borrowers continue to plague it. They increased 28% to 6,091 in the 12 months through January, according to data compiled by the Consumer Financial Protection Bureau in Washington. Grievances against the servicing industry fell 11% during the same period.
Millar, the spokesman, said Ocwen is committed to responding to complaints that come through the CFPB.
Fitzgerald, the California homeowner, has been trying to resolve his dispute over mortgage payments with Ocwen for three weeks with no success. He said he hasn’t made a complaint to the CFPB.
Ocwen representatives told him that the confusion may stem from an issue with his tax or insurance payments to his escrow account, he said. Fitzpatrick told the representatives that he doesn’t even have an escrow account and he emailed Ocwen documents proving it along with paperwork showing he paid his insurance and tax bills.
The next day, the servicer reiterated to Fitzgerald in an email that his loan payments for December and January were overdue and that his mortgage was in default. Even more baffling, said Fitzgerald, the email said Ocwen would send him a $1,700 refund check from the escrow account that doesn’t exist.
“There is no escrow, and never has been, so it’s not possible for that money to be a refund,” said Fitzgerald, who isn’t going to cash the check. “I don’t understand how they can be so clueless.”