Consumer Corner: Homeowners Hurt By Mortgage Insurance Company

By Alan Marx, AARP Tennessee Consumer Watchdog

Mortgage service companies process and apply payments from mortgage borrowers, communicate payment information to those borrowers, manage escrow accounts, and maintain loan balance information. The companies provide other services for borrowers in connection with their mortgage, which may include tracking the

interest rates on adjustable rate mortgages, using escrow funds to pay the taxes and insurance owed, negotiating mortgage modifications and workouts, and, if necessary, conducting or overseeing foreclosures. They may also engage in the marketing, processing, and transmission of payments for credit monitoring products, financial advisory products, and other products that are added to the borrower’s accounts. Borrowers do not choose their mortgage service provider and have no control over how their loans are serviced.

A mortgage service company may be a bank or the lender for the borrower. Many mortgages are sold to investors such as Fannie Mae, Freddie Mac, Ginnie Mae, FHA, or investors who are engaged in mortgage securitizations.

To provide mortgage servicers the companies use electronic databases. If the information that is put into the database is incorrect, or if the database itself contains deficiencies, the service company can cause financial harm to the borrower.

Ocwen Financial Corporation, together with its subsidiaries, is one of the largest nonbank mortgage service companies in the United States. As of December 31, 2016, Ocwen’s portfolio included approximately 1.4 million loans in all 50 states and the District of Columbia, with a total unpaid balance of $209 billion. Ocwen specializes in subprime or delinquent loans.

On April 20, 2017, the Consumer Financial Protection Bureau (“CFPB”) sued Ocwen and its subsidiaries in the United States District Court for the Southern District of Florida, charging violations of the Consumer Financial Protection Act of 2010, the Fair Debt Collection Practices Act, the Real Estate Settlement Procedures Act, the Truth in Lending Act, the Homeowners Protection Act of 1998, and regulations issued under several of those laws.

Ocwen uses a proprietary electronic database known as “REALServicing” to maintain and store its mortgage related

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information. In its compliant the CFPB alleges that Ocwen serviced loans and debts using inaccurate and incomplete information and failed to input accurate and complete information into the REALServicing system. Even worse, when accurate and correct information was put into the database, the REALServicing system was defective and generated inaccurate information, causing Ocwen to rely upon manual workarounds that created mistakes due to human errors
Ocwen Was Aware of the Deficiencies of REALServicing

In a 2014 communication with Ocwen’s Chief Executive Officer, Ocwen’s Head of Servicing described the REALServicing technology as “An absolute train wreck. I know there’s no shot in hell, but if I could change systems tomorrow I would. … I’m talking about getting systems to stay online, escrow analysis to work, letters to print, etc. It’s ridiculous.”

Between 2014 and 2016 Ocwen and an outside consultant it hired assessed REALServicing. The conclusion of both was that the REALServicing system architecture and design was inadequate to properly service loans.

Starting in 2014 Ocwen tracked its regulatory violations and other failures in “Risk Convergence Reports,” assigning a rating ranging from R1 to R5, with R1 being the highest risk. Internal analysis of these and other control reports highlighted the failures of the REALServicing system.

The CFPB alleged that Ocwen’s use of the unreliable information and its other related actions caused harm to borrowers in the following ways, among others.

Foreclosures
​Ocwen wrongfully initiated foreclosures on at least 1,000 people. In some instances it initiated the foreclosure process before completing a review of borrowers’ loss mitigation applications. On other occasions it asked borrowers to submit additional information within 30 days, but foreclosed before the deadline had passed. It also foreclosed on some borrowers who had loss mitigation agreements in place and were fulfilling their obligations.

Failure to Credit Payments
​Ocwen failed to credit payments made by some borrowers and failed to send accurate statements. Ocwen failed to correct many errors when borrowers complained.

Failure to Properly Account for Escrows
​Some borrowers paid incorrect amounts because Ocwen failed to maintain proper escrow records. It sent statements to some borrowers late or not at all, did not apply payments to address shortages in some escrow accounts, and did not inform some borrowers when property taxes went up.

Mishandled Insurance and Tax Payments
Ocwen failed to make timely payments for homeowners’ insurance, causing their insurance to lapse. This reportedly happened to more than 10,000 borrowers.

Deceptively Enrolled Some Borrowers in Add-on Products
Some borrowers were enrolled in add-on products by Ocwen without their consent or through deceptive solicitations. Ocwen collected from these borrowers.

Failed to Investigate and Correct Errors
The CFPB alleged that since 2014 Ocwen failed to acknowledge and investigate reports of errors or make corrections for many borrowers. Ocwen made a change in its approach in April 2015, but that did not correct the problem because under its new policy a borrower would have to complain at least five time in nine days before the complaint would be escalated to be resolved. Since April 2015 more than 580,000 complaints were received from more than 300,000 different homeowners.

Actions against Ocwen by States
During the week of April 17, 2017, 22 states took action against Ocwen for issues with its escrow accounts and for “willful and ongoing unlicensed activity” in some states. The actions ranged from suspending the company’s new mortgage servicing rights in some states to halting its ability to foreclose. One state entirely suspended the company’s operations in the state.

In addition, Maryland, Michigan, and Indiana took actions against Ocwen. Maryland “summarily suspended” the mortgage lender licenses of Ocwen and its subsidiaries, prohibiting them from acquiring new mortgage servicing rights for Maryland mortgages and ordering Ocwen to “immediately begin the process of migrating loans off the REALServicing platform.”

Conclusions
​Everyone has heard the expression, “Anyone can make a mistake.” True enough, but when a company has 580,000 complaints from 300,000 different homeowners it is on the wrong side of the benefit of the doubt curve. Absent vigorous consumer protection enforcement by the CFPB and the states (and perhaps a raft of private lawsuits), would this company ever have decided enough is enough and decided that it was time to get serious about fixing its problem?

In court cases and in debates, one of the most effective approaches is to find a quote from the other side and use it to make your point. Will you ever find a better quote than the one in 2014 from Ocwen’s Head of Servicing to its Chief Executive Officer describing the REALServicing system as “An absolute train wreck.” and “It’s ridiculous.”