Monitor Finds Ocwen’s IRG Issues Have Been ‘Sufficiently Addressed’

Joseph A. Smith, Jr., monitor of the National Mortgage Settlement (NMS), concluded his investigation of Ocwen Financial's Internal Review Group (IRG) with the determination that issues surrounding the Atlanta-based servicer's IRG have been "sufficiently addressed," according to an announcement from Smith's office.

Smith announced Tuesday he had filed his final report with the U.S. District Court for the District of Columbia on the investigation of Ocwen's IRG and of Ocwen's compliance with the NMS for the first and second quarters of 2014.

Smith's report includes independent retesting of at-risk metrics and the corrective action plans (CAPs) Ocwen has implemented to address deficiencies. Consumer relief crediting for both Ocwen and SunTrust are included in Smith's report.

Smith, who is overseeing Ocwen's compliance with the terms of the NMS, said his team launched an investigation in May 2014 after hearing from an employee about "serious deficiencies in Ocwen's internal review group process" and issues relating to erroneously dated foreclosure notices to about 7,000 borrowers, which Ocwen blamed on computer errors. The erroneously dated notices resulted in Ocwen reaching a $150 million settlement with the New York Department of Financial Services in December 2014.

"I now have a measure of assurance that issues with Ocwen’s IRG’s independence, competency and capacity have been sufficiently addressed," Smith said. "Before reaching that conclusion, I ordered independent retesting of at-risk metrics, reviewed changes made to the personnel and governance of the IRG, and reviewed and approved corrective action plans to address failed metrics and a global corrective action plan that intends to fix letter-dating issues. I will continue to closely monitor Ocwen’s compliance with the Settlement agreement and plan to report on Ocwen’s compliance for the third and fourth quarter of 2014 in the coming weeks."

Independent firm McGladrey LLP reviewed metrics deemed to be at-risk for Q1 and Q2 2014 under Smith's direction. McGladrey's findings were "substantially consistent" with those of Ocwen's IRG. Two failed metrics were discovered for Q1 2014, one found by McGladrey and one discovered by Ocwen's IRG. Ocwen submitted a CAP, which has been approved by Smith, for both failed metrics. Ocwen has also submitted a Global CAP to remedy the issue of the erroneously dated foreclosure notices under Smith's direction and approval. According to Smith, Ocwen will implement the Global CAP and testing will resume in Q3 2015.

"We are pleased that after more than one year of intense scrutiny and investigation by the Monitor, our original testing was substantially validated," said Ocwen spokesman John Lovallo. "The Monitor appears to have regained confidence in our Internal Review Group and our overall compliance with the National Mortgage Settlement."

Consumer Relief Credit

Smith confirmed that Ocwen has provided more than $881 million in consumer relief to 8,861 borrowers through first-lien mortgage modifications as of December 31, 2014, in his first report on Ocwen's $2 billion consumer relief obligation under the NMS.

"After my thorough reviews, I can confirm Ocwen’s progress of over $800 million toward its consumer relief obligation," Smith said. "I will continue to report to the public on Ocwen’s consumer relief activities and my reviews as information is available."

Lovallo issued a statement that Ocwen was "very pleased" with Smith's first update on Ocwen's progress toward its consumer relief obligation under the NMS.

"With over two years left to meet our obligations, we have completed 44 percent of the required consumer relief, and we believe we have satisfied most if not all of the remaining principal reduction requirements," Lovallo said. "We will submit those principal reductions credits to OMSO (Office of Mortgage Settlement Oversight) in the near future. These principal reduction modifications, as well as all our loss mitigation options we offer to our borrowers, are designed to be net present value positive when compared with a foreclosure. In the end, our principal reduction modifications benefit both investors in the loans, and help keep families in their homes."

SunTrust Bank

Smith also reported that he has credited SunTrust Bank with distributing $7.8 million in consumer relief toward its obligation of $500 million to be provided by September 30, 2017. The initial filing is based on 100 loans submitted by the Atlanta-based bank through December 31, 2014. This is Smith's second report on SunTrust's consumer relief progress.

"SunTrust submitted to me an initial sample of 100 loans to ensure that its testing protocols had been properly designed and implemented," Smith said. "Based on this early review of relief distributed through year-end last year, I am encouraged by SunTrust’s progress. I will continue to closely review and oversee its consumer relief distribution until the $500 million requirement has been met, and I will make information public as soon as it is available."

The NMS was originally finalized in April 2012 between 49 states and the District of Columbia, the federal government, and five banks and/or mortgage servicers —Bank of America, Citi, JPMorgan Chase, Parties to GMAC Residential Capital (which was taken over by Ally Financial), and Wells Fargo—to settle claims of misconduct on the part of the servicers involving residential mortgage foreclosures and loan servicing.

The settlement created new servicing standards and providing relief to distressed homeowners as well as funding for state and federal governments. As part of the agreement, the five servicers were required to provide $20 billion in consumer relief and $5 billion in other payments. The settlement is considered landmark because it established the first-ever nationwide reforms to mortgage servicing that include better communication between servicers and borrowers as well as a single point of contact and appropriate standards servicers for executing documents in foreclosure cases.

Ocwen falls under Smith's supervision due to Ocwen's acquisition of mortgage servicing rights from a unit of Ally Financial, which took over GMAC Residential Capital (ResCap), one of the original banks included in the settlement. ResCap filed for Chapter 11 bankruptcy in 2013. Ocwen entered into a new consent judgment with the CFPB and 49 states in 2014 that required Ocwen to provide $2.1 billion in consumer relief and comply with standards set forth by the NMS for its entire loan portfolio.

For more information about the 2012 National Mortgage Settlement or to see copies of the complaint and all consent orders, click here.