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Updated on Thursday, March 19, 2015
Ocwen, the largest nonbank servicer, is in the news again for all of the wrong reasons. They have announced that they will be delaying the publishing of their annual report. In particular, management is concerned about the ability of their subsidiary Home Loan Servicing Solutions, Ltd. to fund new servicing advances. Failure to fund could have a large and negative impact on the results of the overall group.
In addition, Ocwen is being forced to sell even more of its mortgage servicing portfolio. The company announced that it would sell a $9.6 billion portfolio to Walter Investment Management Corp. This was a portfolio of 55,000 home mortgages backed by Freddie Mac. According to the press release, these were performing mortgages. Walter is based in Tampa, FL and has 6,700 employees.
And just today, Mortgage Professional America reported that JP Morgan Chase is buying $45 billion of mortgage servicing.
None of the indicators look good for Ocwen. In addition to delaying financial reporting and selling healthy assets, their share price is down a staggering 79.61% over the last 12 months.
A History of Trouble
Ocwen has been in the news a lot lately, and for all of the wrong reasons. Ocwen grew rapidly, and became the largest non-bank servicer in the country. After the 2008 crisis, banks fell out of love with the mortgage servicing business. In particular, they felt the reputation risk and capital requirements of servicing were too much to handle. Every time a foreclosure went wrong, the banks would suffer in the press and on social media. In one horrible example, JP Morgan Chase improperly foreclosed on military homeowners. That was after they admitted to completing 56,000 foreclosures without a single human reading the documentation. Dave Lowman, the CEO of the Chase Mortgage Business, was fired due to the increasing bad press from the operational disasters. Chase didn’t hide their anger. A tersely worded document from a senior manager stated that “Dave Lowman and I decided he will leave the firm.”
Banks, including JP Morgan Chase, were overwhelmed by the post-crisis foreclosure volume and decided that the heightened reputation risk wasn’t worth taking. So they started outsourcing mortgage servicing to third party providers aggressively. The biggest of them all was Ocwen, who grew dramatically. However, they were not ready for the volume that they received from big banks. The mistakes made by the big banks started to look tiny when compared to the mistakes of Ocwen.
MagnifyMoney reviewed the complaint database of the Consumer Financial Protection Bureau (CFPB). Ocwen had a stunning increase during 2013. It culminated in Q1 2014, when Ocwen had more complaints than Bank of America. To receive the same number of complaints as Bank of America and their subsidiary Countrywide is truly shocking.
Complaints are usually a great indicator of problems, and the problems certainly started coming during 2014.
In January 2014, Ocwen was prohibited by the state of California from acquiring any more servicing portfolios. The bad news continued throughout the year, and culminated in October when they were accused by the State of New York for backdating foreclosure letters. By doing this, they were able to accelerate the foreclosure process improperly. The backdating issue was just further evidence of a company out of control. At best, backdating was an error. At worst, it was a plan to accelerate foreclosures. In either case, you lose complete faith in management’s ability to oversee a mortgage servicing business, let alone administer foreclosure proceedings.
What Does This Mean For Consumers?
Ocwen has been under the microscope, and that focus will only continue to increase during 2015. If your mortgage is being serviced by Ocwen, you should pay close attention. If you run into problems that cannot be resolved, do not give up. You should use the CFPB complaint process. Not only can they help you resolve your situation, but your data will be captured, which can help the regulators keep an eye on Ocwen. You can file complaints online.
However, given Ocwen’s situation, you shouldn’t be surprised if your servicer changes. Over the next 6-12 months, many more customers can expect to receive letters introducing your to your new servicer.
Back To The Future?
Does JP Morgan’s purchase mean that banks are re-entering the servicing market? At MagnifyMoney, we think it does. There was an almost overwhelming flood of foreclosures after the 2008 crisis. The banks were not prepared to handle the volume, and they did not want to deal with the negative publicity. So, they sent a lot of their business to third parties. However, as we continue to recover from the crisis, we can expect to see more banks retaining servicing rights. And, in some cases, we may even see banks repurchase servicing rights.
Ocwen’s story should remain a cautionary tale for banks. From mortgage servicing to debt collections, third party providers are often hungrier for volume than they should be. Typically smaller than banks, they bid aggressively for business. They are very entrepreneurial, and look for a way to deal with the volume after it arrives. However, the cost of getting it wrong in consumer finance is just too high. People can lose their homes due to the failure of a servicer to follow proper protocol. And when banks originate business, they will increasingly be judged by the third parties who work on their behalf. The excuse “it wan’t me” won’t hold up in the future like it did in the past.