By Emily Stephenson
WASHINGTON, Dec 19 (Reuters) - U.S. officials on Thursday ordered the largest nonbank mortgage servicer to provide $2 billion in help to underwater borrowers to resolve allegations of misconduct that led to thousands of people losing their homes.
Ocwen Financial Corp must reduce loan balances for struggling homeowners and refund $125 million to foreclosed borrowers under an agreement with the U.S. Consumer Financial Protection Bureau and officials from 49 states and the District of Columbia.
Ocwen failed to account for borrowers' payments, gave false reasons for denying loan modifications and robo-signed legal documents, the consumer bureau said.
In many cases, after Ocwen began servicing loans, it did not respect trial modifications that had already been agreed to by the lenders, consumer bureau Director Richard Cordray said.
"After examining the potential violations, we've concluded that Ocwen made troubled borrowers even more vulnerable to foreclosure," Cordray said in a conference call with reporters.
Ocwen separately disclosed the agreement on Thursday and said it had already set aside funds to cover all but about $500,000 of the required refund payments.
"The agreement, which is subject to court approval, is in alignment with the same ultimate goals that we share with the regulators - to prevent foreclosures and help struggling families keep their homes," Ocwen said in a statement.
The firm did not admit to the allegations, according to court documents.
Mortgage servicers include banks and nonbank firms that collect borrowers' payments, communicate with them about modifying loans in distress and handle foreclosure processes.
The consumer bureau, which was created by the 2010 Dodd-Frank law, has written tough new rules for the industry that take effect in January. Cordray said that, under those rules, Ocwen would have had even more servicing violations.
Regulators found widespread abuses by servicers in the years after the 2007-2009 financial crisis, when foreclosures spiked. Several big banks, including Bank of America and Citigroup, settled with officials and agreed to tougher consumer protection requirements.
Ocwen, Nationstar Mortgage Holdings and other nonbank servicers grew rapidly in the years after the crisis, prompting concerns from some in the mortgage industry that borrower abuses might also migrate.
Ocwen, which specializes in handling subprime and delinquent loans, is now the fourth-largest mortgage servicer in the United States.
It bought servicing rights from Morgan Stanley, Goldman Sachs and Ally Bank, which was part of the national settlement in 2012.
Some of its portfolio, including the portion purchased from Ally, fell under the requirements of the 2012 settlement, which covered about half of the servicing market. The new agreement covers the rest of Ocwen's loan portfolio, Cordray said.
Under the agreement, Ocwen will have to wait 60 days after acquiring a loan before any foreclosure proceedings can begin. The agreement limits the fees Ocwen can charge and forces the company to tell distressed borrowers about options to avoid foreclosure, the consumer bureau said.
Cordray said Ocwen's compliance with the new agreement will be overseen by the same person who monitors the 2012 settlement, former North Carolina bank regulator Joseph Smith Jr.
- Financials Industry
- Richard Cordray