Monitor: Ocwen Failed Part of Compliance Test; Internal Review Group Has Improved

Retesting of Ocwen Financial's compliance with the terms of the 2012 National Mortgage Settlement (NMS) for the first quarter of 2014 revealed that the Atlanta-based servicer failed one metric originally reported as a pass, but passed the other eight metrics, according to a release from the Office of Mortgage Settlement Oversight.

In a report filed with the U.S. District Court for the District of Columbia on Thursday, NMS Monitor Joseph A. Smith, Jr., reported the results of the retesting for Q1 2014 and also outlined several actions Ocwen has taken to improve its internal review group (IRG), which Smith has been investigating since May 2014.

"Since my last report, my team and I have been working to assess Ocwen’s compliance with the NMS," Smith said. "Our retesting for the first quarter of 2014 of nine metrics that our investigation determined to be ‘at risk’ showed that the servicer failed one metric (Metric 19) that it had previously reported as a pass. Metric 19 tests whether the servicer is complying with the requirement to notify borrowers of any missing or incomplete documents in a loan modification application. Ocwen has proposed a corrective action plan to address the reasons for its failure, and I am reviewing it."

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

"While our testing continues, Ocwen has taken a number of actions to address previous problems with its internal review group. Specifically, Ocwen replaced the executive who leads the IRG and otherwise reorganized employees, adopted corporate governance principles, and enhanced my access to information," Smith said. "I also created a hotline to allow any concerned employees to contact me directly and anonymously if they see problems. As a result of these actions, I report to the court that Ocwen internal review group’s independence, competency, and capacity have shown measurable improvement."

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, ResCap Parties, and Wells Fargo). As part of the agreement, the five servicers were required to provide $20 billion in consumer relief and $5 billion in other payments. Ocwen falls under Smith's supervision due to the servicer's acquisition of mortgage servicing rights from a unit of Ally Financial, one of the original banks included in the settlement.

Ocwen entered into a new consent judgment with the Consumer Financial Protection Bureau (CFPB) in February 2014 that requires Ocwen to provide $2.1 billion in consumer relief and to comply with the servicing standards set forth by the NMS.

In April, Ocwen reported in its second update on consumer relief under the NMS that 21,257 borrowers had completed first-lien modifications and benefited from $1.9 billion in consumer relief through the end of Q4 2014. Ocwen also reported that an additional 284,089 borrowers had either started a trial modification or were offered or approved for a trial modification by the end of Q4. These were Ocwen's self-reported numbers and they have not been credited by the monitor as of yet.

Smith plans to file a final report with the court in the coming weeks that will include results of the letter dating metrics and at-risk metrics for Q2 2014.

"Ocwen is committed to being fully compliant with all rules and regulations related to our business. The Monitor’s compliance report released on May 7, 2015, speaks for itself and describes the positive steps Ocwen has undertaken resulting in significant progress," an Ocwen spokesman said in a statement. "According to the report, our internal review group’s independence, competency, and capacity have shown measureable improvement, and if a compliance matter is raised we immediately develop a corrective action plan. We are pleased with the progress we have made so far working with the Monitor, and we will continue to make every effort to improve all aspects of our compliance procedures and processes. Ocwen looks forward confidently to the Monitor’s next report."