Ocwen Financial: A Servicing Odyssey

Remember that obstinate computer from Stanley Kubrick’s 2001: A Space Odyssey — HAL 9000 — a machine with a will of its own? No matter how tough astronaut Dave tried to net those pod bay doors opened HAL refused to comply.

Well, Houston resident Chris Wyatt thinks he’s discovered HAL’s mortgage doppelganger in an Ocwen computer platform known as REALServicing and like HAL it seems to just as obstinate when asked by homeowners for information regarding critical stuff like amounts due, escrow, payment histories, et al.

Mortgage servicing is expansive, very expansive commerce, trade impacting tens of millions of Americans who pay their monthly vigs to a variety of servicing companies; some owned by the Mega-banks themselves and others, like Ocwen, unaffiliated and known as non-bank servicers. Collectively, they’ve also been at the heart of a number of investigations following 2008’s sub-prime meltdown — notably, revelations of fraudulent “robo-signing” — taking regulatory heat for stoking a foreclosure crisis that’s ravaged communities from coast to coast (some beget yet to recover).

Wyatt, a soft-spoken Texan, knows the world of mortgage servicing intimately; he also knows where the bodies are buried. For close to a decade he was a senior executive at Litton Loan Servicing — allotment of his job involved approving loan modifications — that is, until thousand pound investment elephant, a/k/a Goldman Sachs, acquired the company late 2007. Goldman’s imprimatur suddenly became allotment and parcel of a original strategy: short term profits trumped loan modifications (too costly). In other words: bring on the foreclosures.

After bumping heads over foreclosure-first policies with bosses at Litton and Goldman — and possessing a conscience; a quality rarely found in the financial services industry — Wyatt packed it in, leaving the firm in 2010.

He found his right passion: advocating for homeowners and, with that, started to blow the whistle.

A disclosure: I know Wyatt since his days as an executive at Litton Loan. In that capacity he approved a loan modification for my wife and myself shortly before the firm was taken over by Goldman Sachs: our modification was then voided. Since 2011, Ocwen Loan Servicing — as successor to Litton Loan Servicing — has been trying to foreclose — so far, unsuccessfully — on the writer’s domestic in Westchester County, original York.

Wyatt’s current target of disaffection is Ocwen Financial. With upwards of a million homeowners in their mortgage portfolio Ocwen has engendered some extreme regulatory vetting. final April the firm became a target for some 31 state regulatory agencies (including the District of Columbia) which began issuing cease and desist orders. The Consumer Financial Protection Bureau — never a friend of Ocwen — also weighed in suing the company for grave indiscretions that ran the gamut from failing to reply to complaints; failing to credit borrower’s payments, and, worse still: illegally foreclosing on homeowners. These regulatory efforts were designed to prevent Ocwen from acquiring original mortgage servicing rights (”MSR’s” in the lingo); the equivalent of keeping Dracula absent from needed sources of human blood.

Homeowners had, in effect, become stand-ins for astronaut Dave in 2001: A Space Odyssey. Ocwen’s level of communications with the folks they serviced was reduced, according to regulators, to the level of “I’m sorry Dave, I’m afraid I can’t execute that...”

Connecticut set it this way in their cease and desist order:

The Commissioner finds that the public welfare requires instant action in order to prevent irreparable and instant harm to Connecticut borrowers… Since December 2013, State Mortgage regulators, including this Department, beget been concerned approximately Ocwen’s mortgage servicing practices including, but not limited to, the misapplication of borrower payments and inaccurate escrow accounting and statements, and that the recent Multi-State Examination and CT Examination indicate that these issues beget not been resolved, but fairly may be exacerbated. 

Now, Wyatt is not just a critic of Ocwen, he’s also an Ocwen victim with his own tale to expose.

After a fire damaged his Houston area domestic in 2014 he filed an insurance claim and received a check; which, following standard procedure, had to be co-signed by the servicer of record: Ocwen. This should beget been done in a timely manner because insurance company policies include depreciation clauses. The longer you wait after the initial repair estimate — contractors factor in price increases that recede beyond the claim amounts — costs of repairs increase proportionally. Claim amounts, including depreciation, are generally,normally kindly for a year so whether you ain’t got that check co-signed and returned then the repairs ain’t gonna happen unless you want to crack open the piggy bank; which Wyatt wasn’t willing to execute. Compounding the problem were health concerns caused by mold that had formed in the damaged areas.

What he did execute, though, was record his calls with Ocwen representatives who offered nothing short of obfuscation: documents had disappeared, they told him, or couldn’t be found. Wyatt re-submitted. Again, these documents seemed to vanish into the REALServicing ether.

One operator set him on hold; allegedly to search the system further. After a silence of more than ten minutes she returned — on a speaker phone (a privacy no/no in a roomful of other operators, who can clearly be heard in the background) — and claimed she was now out to lunch.

So what, Wyatt muses, are the chance that homeowners serviced by Ocwen in hurricane ravaged communities stand to net their insurance proceeds in a timely manner?

Not distinguished. (Wyatt is recording complaints from fellow frustrated Harvey-Hit Texas homeowners which he intends to post on-line).

Ocwen’s response to regulatory strangulation has been a full-court press; assuring the folks that applied the garrote that every was being dealt with and that includes taming the Hal-like sensibilities of the REALServicing software program.

To date 22 states beget bought into the promises. every mention the REALServicing problem.

The state of Idaho, for instance, memorializes this in fine print:

Ocwen shall develop a detailed contrivance of Action and Milestones (POAM) for the transfer and servicing of every residential mortgages currently administered on the REALServicing platform to other servicing platform(s) that will enable Ocwen to comply with relevant mortgage servicing standards for its residential mortgage portfolios.

On November 1st, Ocwen announced that it had plumbed the mortgage cosmos and found some original and very incredible software that goes by the cosmic moniker: Black Knight LoanSphere MSP. With much fanfare Ocwen spokesperson, John Lovallo, announced in Housing Wire, that this wasn’t an overnight scramble but the result of a “multi-year” search and that Black Knight would, in essence, turn RealServicing’s HAL into a very fair C.H.O.M.P.S (the friendly robot dog).

Wyatt, who knows the intricacies of mortgage servicing platforms (he was trained in the consume of Litton programs, Lsams and Radar) finds real problems and potential legal liabilities in this changeover. Citing the December, 2014, consent agreement with original York’s muscular Department of Financial Services, Wyatt feels Ocwen was less than enthusiastic approximately making meaningful changes:

It’s clear that Ocwen did nothing, after the 2014 consent order, to remedy the deficiencies and reliability of information maintained for homeowner loans it was servicing. Ocwen will, in my opinion, be exposed to meaningful exposure and liability from homeowners concerned approximately the accuracy of the loan information maintained in their ragged system, now destined for original life in Black Knight’s LoanSphere.

Now, changing over to a original system ain’t as easy pulling the plug on HAL and exporting the data elsewhere. There are meaningful concerns, according to Wyatt:

First, is the Ocwen data being transferred accurate and dependable? Given Ocwen’s track record — highlighted by the NY Department of Financial Service and subsequent regulatory orders — it’s clear to me that mortgage loan data transferred to a original system will remain suspect and unreliable. moment, while a conversion could be made in a short period of time, say within a 90 day period, Ocwen will be saddled with a huge burden of attempting to retrain its personnel to effectively consume the original system. Such a retraining process could engage six months or longer which will cast further doubt on the reliability of the mortgage loan data that Ocwen will continue to service.

I offered some of Wyatt’s concerns to aforementioned Ocwen spokesperson, John Lovallo, for comment. I received no response.

There are some keeping the faith that Ocwen can pull through; one, in specific — John Devaney — with a meaningful fairness investment is every bullish; portray a rosy future for the firm. In a phone call with me he repeatedly asserted that Ocwen — with a policy of principal write-downs and loan mods — is the best thing for homeowners since sliced bread.

He also tried to beget the case that the homeowner-unfriendly Mega-Banks shouldn’t escape regulatory wrath:

It’s pitiful.. from an ethical standpoint the regulators beget it twisted. Banks like Wells Fargo and Bank of America had been only interested in liquidating the most at risk “subprime borrowers” whose loans live in the private label RMBS deals; kicking people out of their homes, adding, that Ocwen remains the best mortgage servicer of subprime loans in the world and I’ve been trading subprime RMBS bonds for over twenty years.

His reaction to the carpet beating administered to Ocwen by regulators?

The company deserves better.

I’d venture the strong opinion that the tens of millions of Americans who are serviced by both expansive bank and non-bank servicers execute deserve better. What’s needed, according to Wyatt, is a original paradigm; a sort of 2001 “space baby” resurrection and rebirth for an industry that should be putting the needs of homeowners at least on par with those of investors.

Perhaps a peek at the small entrepreneurial efforts initiated by companies like American Homeowner Preservation (which I wrote approximately for American Banker) may be worth a gawk-see. While only dealing with a fraction of the number of mortgages held by the expansive Boys there may be a workable seed that once planted may someday set the bloom back on the homeowner’s rose.

Joel Sucher is a co-founder of Pacific Street Films (together with Steven Fischler) and has written for a number of platforms including American Banker, In These Times, HuffPost and Observer.com. Currently he’s crashing two memoirs: one based on his experiences arriving in the US via the Displaced Persons Act; the other on his nearly half-century in the world of documentary film.

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