US mortgage servicer Ocwen settles customer mistreatment claims

The largest non-bank mortgage servicing company in the US has reached a $2.1bn deal with state and federal authorities to resolve allegations that it took advantage of homeowners, provided false information and charged unauthorised fees.

The agreement by Ocwen Financial shows how the shadow banking industry is not immune from the regulatory oversight that has already stung some of the biggest US banks.

The Consumer Financial Protection Bureau also said on Thursday that Ocwen had deceived consumers about foreclosure alternatives, forced borrowers to buy insurance policies they did not need and unfairly denied changes to loans.

US mortgage servicing and origination is increasingly shifting towards non-banks such as Ocwen and Nationstar Mortgage as the big US banks face large legal payouts for poor mortgage servicing practices.

"Deceptions and shortcuts in mortgage servicing will not be tolerated," said CFPB Director Richard Cordray. "Today's action sends a clear message that we will be vigilant about making sure that consumers are treated with the respect, dignity, and fairness they deserve."

The agreement includes a commitment to reduce principal balances for underwater borrowers by $2bn over the next three years, according to a separate company filing. Principal forgiveness does not cost Ocwen "other than the operating expense incurred in arranging the modification", the company said.

It also stipulates a payment of $127.3m to a consumer relief fund, which it will pay for using a $66.4m reserve and the rest will be funded by the former owners of servicing portfolios already acquired, the company said. Ocwen's reserve will cover all but $0.5m of its payments to the fund.

In an indication of regulatory reach, the agreement also demands a commitment from Ocwen to be subject to oversight by an independent national monitor for three years, the company said.

Wells Fargo and Bank of America are among the US banks to be targeted by New York state regulators for their mortgage-servicing practices. New York's attorney-general Eric Schneiderman said in October he would sue Wells Fargo as he reached an agreement with BofA to improve its mortgage-servicing practices.

In 2012, a group of 49 states and the US reached a $25bn settlement with five of the largest mortgage servicers to try to halt abuses such as "robosigning" - whereby foreclosure documents were mass-signed by banks without the appropriate knowledge about the borrowers - and poor communications with underwater borrowers.

"Regulators are finally beginning to gain traction in delivering the kind of relief needed for homeowners harmed by the conduct of banks and lenders in recent years," said Mr Schneiderman in a separate statement on Thursday.

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Shares in Ocwen Financial are up 60 per cent this year as the company has been well placed to take advantage of increasing interest in the purchase of mortgage-servicing rights, used as a bet to profit from rising interest rates.

Mortgage-servicing rights represent the value of future fees that banks receive for servicing mortgages, such as handling payments and monitoring delinquencies.

The value of the MSRs typically rise when interest rates do because the servicing fees have a longer life if borrowers refinance less, creating a useful hedging tool for banks and other investors.

The Ocwen deal requires approval from the US District Court of the District of Columbia.

Additional reporting by Gina Chon in Washington

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