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Huge Ocwen Servicing Settlement

Ocwen Financial Corp. and its loan servicing subsidiary have agreed to a multi-billion settlement over how it allegedly handled distressed borrowers.

The agreement between the Atlanta-based company, the Consumer Financial Protection Bureau and authorities in 49 states and the District of Columbia was announced Thursday.

Ocwen is accused by the CFPB and states of systemic misconduct at every stage of the mortgage servicing process.

The settlement calls for Ocwen and subsidiary Ocwen Loan Servicing to refund $125 million to nearly 185,000 borrowers whose loans were foreclosed from Jan. 1, 2009, until Dec. 31, 2012. The total will be evenly split between all borrowers who file a claim. Participating borrowers won’t have to release any claims and can seek additional relief through the courts.

Ocwen will pay an additional $2.3 million to administer the refund process.

In addition, Ocwen will provide $2 billion in principal reduction on loans that exceed the value of the properties.

Impacted borrowers include those serviced by Ocwen or acquired subsidiaries Homeward Residential Holdings and Litton Loan Servicing.

The CFPB filed a complaint and a consent order on behalf of all the plaintiffs in a federal court in Washington, D.C., on Friday.

With a reported total servicing portfolio of $434.8 billion as of Sept. 30, the subprime servicer was the fourth-biggest mortgage servicer in the country.

The Federal Trade Commission referred an ongoing investigation of Ocwen to the CFPB in July 2011. In early 2012, the Multistate Mortgage Committee, which is comprised of state financial regulators, identified potential violations at Ocwen.

The CFPB subsequently teamed up with state attorneys general and regulators to investigate Ocwen, resulting in a multi-jurisdictional collaborative effort that led to today’s settlement.

The investigations reportedly found that Ocwen failed to apply loan payments in a timely and accurate manner. It also failed to maintain accurate account statements.

Ocwen allegedly charged borrowers unauthorized fees for default-related services — something that must stop as part of the agreement.

“All servicing fees must be reasonable, bona fide, and disclosed in detail to borrowers,” the announcement said. “For example, Ocwen cannot collect any late fees if a loan modification application is under review or if the borrower is making timely trial modification payments.”

The government claims that the servicer imposed force-placed insurance even though it knew, or should have know, that there was already adequate insurance coverage in place.

In addition, Ocwen is accused of providing false or misleading information in response to borrower complaints.

Ocwen is accused of impeding the recovery process for distressed borrowers by failing to provide accurate information about loan modifications and neglecting to give borrowers correct information about other loss mitigation services. The settlement requires it to notify borrowers of loss mitigation options.

It also allegedly failed to process modification applications or determine eligibility, then lied about reasons for denying modifications.

In addition, according to the complaint, Ocwen didn’t honor previously agreed upon trial modifications with prior servicers and attempted to collect payments on modified loans based on original, unmodified terms.

The agreement requires Ocwen to determine the status of pending loss mitigation requests within 60 days of a loan being transferred. It is also required to honor prior loan modification agreements.

Foreclosures cannot be started while a loan modification application is pending. On denied modifications, borrowers can appeal, and foreclosures can’t be started until the appeals are resolved.

In addition to modification mishaps, Ocwen is accused of mishandling foreclosures by misleading borrowers about the status of foreclosure proceedings when they were in acting in good faith to pursue a mitigation alternative.

The company allegedly used robo-signing practices without verifying information in the preparation, execution and notarization of foreclosure documents as well as in the filing of affidavits. The settlement requires Ocwen to stop using robo-signing on official documents.

Ocwen has agreed to provide a single point of contact as well as make borrower information available to other employees if the borrower needs to speak with someone immediately.

“Ocwen must change the way it services mortgages to ensure that borrowers are protected from the illegal behavior that puts them in danger of losing their homes,” the CFPB statement said. “To ensure this, the CFPB and the states are proposing that Ocwen follow the servicing standards set up by the 2012 National Mortgage Settlement with the five largest banks. Because of Ocwen’s track record of problems handling the large volume of mortgage servicing rights it has quickly acquired in recent years, Ocwen is also being ordered to adhere to additional consumer protections, including how it manages transferred loans.”

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