…And that’s because the nation’s largest non-bank mortgage servicer has supplied its legions of outsourced customer reps in India with a software program that gauges the stress level of callers. Aided in its design by a team of 16 social psychologists, this new wrinkle on mortgage servicing was first reported in a December 2011 article in the Wall Street Journal. By analyzing speech patterns of past calls, the program coaches reps on how to respond to incoming questions posed by often dazed, confused and angry homeowners regarding such matters as incomprehensible penalties and fees on their monthly statements, or why they’ve been peppered with foreclosure notices after having, they thought, negotiated a loan modification. If the history of consumer complaints regarding Ocwen Financial Corporation is any indication, the software program may be keyed to stress-level categories ranging from mildly pissed to hot under the collar to positively postal.
Ocwen Financial is in the center of what could mildly be called a feeding frenzy in the lucrative world of mortgage servicing. Mortgage servicers are simply the out-front reps for the securitized trusts that allegedly own your mortgage. In other words, they’re the ones with the outstretched hands grasping for your monthly payment. As the mega-banks and other financial institutions shed their once-profitable sub-prime mortgage portfolios, their servicing operations are being taken over by non-banking operations. According to a recent article in National Mortgage News, the three top dogs in this realm — Ocwen, Nationstar and Walter Investment — have hoovered in an astonishing $1 trillion dollars of mortgage servicing rights (known as “MSR’s” in the industry).
Ocwen, however, seems to be trying to do a von Clausewitz, outflanking and outmaneuvering its rivals. In the last few months, nearly every mortgage trade publication has sported headlines like “Ocwen buys Homeward Residential From WL Ross” or “Ocwen Agrees to Buy $78B in MSRs from One West.” Ocwen’s current “head count,” the number of mortgages it services, numbers more than 2.8 million. Flush with success, Ocwen’s Chairman, William Erbey, recently announced that he’s now sniffing out other potential revenue streams, including other forms of consumer debt.
But there’s reason for concern at this rapid shifting of servicers. When a new servicer takes a mortgage hand-off, your loan may be in for a rough ride. In the wake of Ocwen’s successful ride to riches, homeowners’ complaints to regulatory agencies regarding servicing issues have increased. Discontinuities, lost paperwork and outright errors can lead to more pain for homeowners already caught in a labyrinthine and punishing process.
Owning a so-called “servicing platform” was all the rage in the financial world pre-2008. Almost every mega-bank and a host of Wall Street financial institutions wanted a piece of the action. Goldman scooped up a Houston-based operation, Litton Loan Servicing; Bear Stearns acquired EMC Mortgage Corporation and Bank of America jumped on the bandwagon with the acquisition of both Wilshire and Countrywide.
In the bad old days of gratuitous sub-prime lending, mortgage servicing provided ready cash for top-tier financial players: There were fees and penalties aplenty that could be levied on homeowners even if they were late on their payments by a day. When things really went south for a financially drowning homeowner, a foreclosure could initiate a revenue rainstorm for servicers and their owners.
But when the house of cards came down in 2008, sub-prime mortgages went from golden to toxic. Mega-bankers couldn’t consume enough Advil to banish the headaches brought on by negative press and increased regulatory scrutiny, and many decided to dump the sub-prime trash — often cleverly called “legacy assets” — on the open market where bottom feeders traditionally go to make a buck.
Enter Ocwen Financial, a Florida-based company that’s been around since the late 1980s but hadn’t really engendered any investor excitement. As industry writer, Paul Muolo, pointed out in a July, 2012, piece for National Mortgage News, Ocwen soon became “the industry garbage man.” One of its first major trash hauls, in 2011, was Litton Loan Servicing, an operation Goldman Sachs desperately wanted to unload. Having direct contact with homeowners, even through a subsidiary, wasn’t really the company’s thing, financial analysts pointed out.
Ocwen, like its other non-bank counterparts, claims it works with homeowners in default by using a combination of loan modifications and principal reduction to make non-performing loans dance again. But despite the high-mindedness of Ocwen’s trademarked motto, “Helping Homeowners Is What We Do!”, there have been problems in spades. First of all, when a new servicer acquires an old loan portfolio there’s a learning curve, a getting-up-to-speed regarding the history of the loan and what has or has not been done to follow up requests for loan modifications. Different servicers also use different types of software — some proprietary — which could cause compatibility problems. And when major cost-cutting is implemented, like outsourcing critical customer care resources to India, communications issues are heightened.
According to ex-Litton Loan Servicing employee, Chris Wyatt, the result is that the left hand often doesn’t have clue what the right hand is doing, and often neither hand cares to acknowledge this shortcoming. Wyatt, now a homeowner’s advocate, has counseled numerous perplexed homeowners who’ve gone to the mat with Ocwen.
One homeowner living in Hawaii, Steven “V,” reached out to Wyatt for help in figuring out Ocwen’s modification agenda (he asked for anonymity).
Steven, whose loan was formerly serviced by Litton, says he’s at a loss as to why Ocwen can’t provide him a permanent loan modification. He claims that he’s made timely payments — four in fact — during the course of a trial modification but has been denied a permanent resolution. After Steven followed up with a battery of questions regarding the turn-down, company reps responded in three separate letters, each offering a different calculation to demonstrate he had insufficient income for a permanent modification. But, according to Wyatt, who reviewed the Ocwen memos, there was a significant problem: All the calculations were in line with figures Steven had submitted to Ocwen for the trial modification, which had been approved.
Steven feels that he’s been on the chump end of a bait-and-switch scam — established industry practice is to offer a permanent modification to a homeowner who fulfilled his or her end of the bargain during the course of the trial run. Again, Wyatt sees a company that’s grown too big, too fast and doesn’t have the requisite systems in place to deal with the sheer numbers of mortgages they’ve been buying up.
Communications problems with Ocwen are at the root of Susan Farrell’s travails as well. A Philadelphia resident with hearing, vision and speech disabilities, Farrell has always managed to support herself as a pet services provider. In 1998, Farrell says she signed on to a local program that let her pay her real estate taxes directly to the city. She managed to stay current on her mortgage payments until Ocwen acquired the right to service her loan in 2011. Then, as she tells it, things spun wildly out of control. Farrell claims that she informed Ocwen of her intention to keep paying property taxes to the city but Ocwen, unbeknownst to her, began stripping her monthly payments for tax escrow and only then applied the excess to principal and interest. As a result she fell into arrears, and that’s when she says the foreclosure notices started to pop up like weeds after a downpour. With the help of a good friend and a community-based legal organization she’s managed to keep the barbarians away from her gate, for now, but still remains in foreclosure limbo; a Bardo state that she now shares with millions of other American homeowners impacted by the foreclosure crisis.
But there’s one example that takes the cake, so to speak: the case of an upstate New York homeowner, whom we shall call “MP” for anonymity’s sake, the head of an extended family that includes a child with cerebral palsy. This homeowner was foreclosed upon, evicted, then, in a Kafka-esque twist, foreclosed upon again. After the family was eventually thrown out of its home by Waterfall Asset Management in October, 2012, “MP” started to get hit with new notices from Ocwen demanding a payment of $326,000 on an empty house.
Following the paper trail, Wyatt surmised that “MP”’s loan at one time had been serviced by Litton Loan for a company, C‑BASS, which then sold its stake in the mortgage to Waterfall. But when Ocwen took over Litton and acquired the portfolio, it appears no one bothered to stamp “already foreclosed” on this mortgage.
Chris Wyatt has spent more than 20 years in the banking and mortgage servicing industry (nearly nine of those years at Litton Loan), and has taken his own probing look into Ocwen’s set-up. He says he’s come across a litany of problems that seem to have escaped major regulatory oversight — perhaps, he believes, because regulators themselves are babes in the woods regarding the ins and outs of this industry (the Consumer Financial Protection Bureau has been around for scarcely three years). One serious problem, he says, that seems to have been overlooked by regulators are homeowner complaints that Ocwen has been unresponsive to requests for loan documents such as the “Note, Mortgage and Assignment Chain” — all the crucial links that provide a legal foundation for a servicer’s right to foreclose. Ocwen’s position, according to Wyatt: These documents are superfluous to the servicing of the loan.
Because of these concerns, Wyatt has started a Change.org petition calling for the CFPB and other regulatory agencies to take a hard look at the servicing practices of the country’s fastest growing non-bank servicer.
It’s not as though Ocwen has completely escaped regulatory oversight. In March of 2011, the company announced that it was under regulatory scrutiny and complying with FTC requests for information regarding its servicing and debt collection practices. In December of 2012, New York’s Department of Financial Services took the servicer to task, ordering a compliance monitor to oversee the company’s servicing practices; in particular, the capabilities of its staff, its policies related to foreclosure prevention and the fairness of its fees.
For its part, CFPB has gone on the record acknowledging that the massive slide of mortgages from one servicer to another is fraught with risks for homeowners. In a February 11, 2013 bulletin, the regulatory agency advised servicers essentially to mind their manners and make sure that all information regarding a homeowner’s account be accurately conveyed to a new servicer. That includes any loss mitigation efforts and trial modification histories — in short, details relevant to keeping a homeowner out of foreclosure.
“Consumers should not be collateral damage in the mortgage servicing transfer process,” said CFPB Director Richard Cordray in a press release when the advisory was first issued. He went on to say what most struggling homeowners, no doubt, want to hear from someone in charge: “This guidance directs all mortgage servicers, both banks and nonbanks, to follow the laws protecting borrowers from the risks of such transfers, and makes clear that we will be monitoring them for compliance.”
Regulators like CFPB have taken the first tentative steps in acknowledging that there is, indeed, a major problem. But acknowledgement is one thing; enforcing compliance … well, that’s a horse of a different color. Spokespeople for both New York DFS and CFPB declined to comment regarding any current regulatory efforts targeting Ocwen.
Meanwhile, Ocwen continues its profitable ride to servicing riches, posting a recent third-quarter 2013 net income of 67 million dollars. An Ocwen spokesperson did not return a request for comment.
With more and more homeowners falling under the umbrella of non-bank servicers homeowners need assurance that their previous efforts toiling to avoid foreclosure won’t be lost in a transition to a new servicer. Unless there’s someone actually listening and responding to complaints like Farrell’s, then these homeowners are simply whistling in the proverbial wind.