Ocwen Financial Keeps California Mortgage License, Sued By Large Bondholders
The California Department of Business Oversight (DBO) is dropping an effort to suspend Ocwen Financial’s mortgage license in the state, after reaching a settlement with the embattled mortgage servicing giant.
The DBO said on Friday evening it has reached a $2.5 million settlement with Ocwen Loan Servicing, and will drop an effort to suspend the company’s mortgage license, which it filed in a California court in October. That threat came after the DBO said Ocwen was unresponsive to information requests the regulator made after receiving complaints about the servicer over the course of multiple years.
“The Department is committed to supporting a fair and secure financial services marketplace for all California consumers,” DBO Commissioner Jan Lynn Owen, said in a statement. “This settlement allows us to move forward and ensure that Ocwen is meeting its obligations under the law.”
As part of the settlement, Ocwen will be prohibited from taking new California customers until the DBO determines it is in compliance with state laws such as the California Residential Mortgage Lending Act and the 2012 Homeowner Bill of Rights. Under the consent order, Ocwen will allow a third-party monitor to review its compliance with the DBO’s information requests and state laws.
The monitor will also audit Ocwen’s loan servicing procedures, processes and staffing levels. The DBO retains the ability to pursue enforcement against Ocwen if the examination of loan files uncovers violations of the California laws.
Friday’s settlement is likely to be taken positively. Had Ocwen lost its mortgage license in California, the sanction would impact 378,132 loans that the company services in the state. Those loans currently carry a unpaid principal balance of $95 billion or roughly 23% of Ocwen’s total UPB due, according to analyst estimates.
While the pact with the DBO can help remove some major uncertainties for Ocwen, significant issues continue to emerge for the company.
Earlier in the day, BlueMountain Capital disclosed it was shorting the stock of Ocwen Financial and one of its publicly traded affiliates Home Loan Servicing Solutions. The hedge fund also delivered a notice of default against a receivables trust that is a key funding source for Ocwen, battering shares of both Ocwen and HLSS.
BlueMountain believes that regulatory sanctions against Ocwen have put some of the RMBS trusts it services in position of default. As a result, the hedge fund has bought what it believes are defaulted notes, and shorted both the stock of Ocwen and HLSS. On Friday, the hedge fund delivered a notice of default on the notes it owns, Series 2012-T2 and Series 2013-T3 Notes issued in connection with the HLSS Servicer Advance Receivables Trust
BlueMountain also said it directed the trustees of some RMBS investors “to investigate and/or take action with respect to Ocwen Loan Servicing.” Those efforts appear to have succeeded.
Law firm Gibbs & Bruns said late on Friday that 25% of voting rights in 119 Residential Mortgage Backed Securities Trusts that count Ocwen Financial as a master servicer issued a notice of non-performance to their trustees BNY Mellon, Citibank, Deutsche Bank , HSBC, US Bank, and Wells FargoWFC-0.95%. Those trusts contain an original mortgage balance of $82 billion, Gibbs & Bruns said.
“Based on a lengthy investigation and analysis by independent, highly qualified experts, the Holders’ Notice alleges Ocwen has failed to perform, in material respects, its contractual obligations as Servicer and/or Master Servicer under the applicable [pooling and servicing agreements],” Gibbs & Bruns said
The firm cited Ocwen’s use of trust funds to pay for borrower relief, conflicts of interest that enriched affiliates like Altisource and HLSS, and the company’s poor record keeping. It said those issues have caused trusts serviced by Ocwen to perform “materially worse” than those of other servicers.
“The Holders further allege that these claimed defaults and deficiencies in Ocwen’s performance have materially affected the rights of the Holders and constitute an ongoing Event of Default under the applicable PSAs,” Gibbs & Bruns concluded.