Consumer Agency, States Win $2B in Relief for Homeowners
Jenna Greene writes for American Lawyer affiliates The National Law Journal and The Blog of Legal Times.
Citing "systemic misconduct at every stage of the mortgage servicing process," the Consumer Financial Protection Bureau, 49 states and the District of Columbia will require one of the country's largest mortgage loan servicers to provide $2.1 billion in relief to struggling homeowners.
Atlanta-based Ocwen Financial Corp. agreed to provide $2 billion in loan modification relief to its customers through principal reduction, plus another $127.3 million in refunds to foreclosure victims.
CFPB Director Richard Cordray called the deal "a landmark" for the agency, which worked with regulators in every state but Oklahoma to craft the settlement. The consent judgment is still subject to approval by a judge in U.S. District Court for the District of Columbia, where the complaint was filed.
The nation's fourth-largest mortgage servicer (and largest non-bank servicer), Ocwen specializes in handling subprime or delinquent loans.
"Ocwen took advantage of consumers with servicing shortcuts and unauthorized fees," Cordray said, noting robo-signing documents, failing to accurately credit payments and providing customers with false or misleading information. "We have concluded that Ocwen made troubled borrowers even more vulnerable to foreclosure."
But the money for the principal reductions won't come directly out of Ocwen's pocket. The company is a mortgage servicer, tasked with collecting payments on behalf of the loan owners. When principal is knocked off the balance of a loan—in Florida, for example, eligible homeowners are likely to see their mortgage balances drop by an average of $50,000--it's the lender that takes the hit.
Under the settlement, Ocwen is supposed to offer and facilitate loan modifications for borrowers facing foreclosure rather than simply foreclosing--provided the modifications meet investor, guarantor, insurer and program requirements.
Iowa Attorney General Tom Miller defended the arrangement during the press call, arguing that the "investor is better off" and in fact receives "more than they would by foreclosure."
Further, Cordray said Ocwen has three years to implement the $2 billion principal reductions for underwater homeowners. If the company doesn't deliver, it must make up the difference in a cash penalty. "They're on the hook for getting it done," Cordray said. Also, Ocwen must bear the administrative costs of arranging the reductions.