New York's top banking regulator claims mortgage servicer Ocwen Financial sent more than 6,100 borrowers notices of possible foreclosure only after their payment deadlines had passed.
The systems failures that Ocwen outlined previously as "isolated" are much greater in scope than what the company had previously disclosed, according to Benjamin Lawsky, superintendent of the state's Department of Financial Services.
Lawsky sent a warning letter Tuesday to Ocwen Chairman William Erbey, his counsel and directors, regarding what Lawsky described as a practice that is possibly still ongoing.
"Ocwen must fix its systems without delay," the letter said.
Officials of Atlanta-based Ocwen are cooperating with the investigation and "deeply regret the inconvenience to borrowers who received improperly dated letters as a result of errors in our correspondence systems," an Ocwen spokesman wrote in an email. The company initially said it had identified 283 New York borrowers who had received letters with incorrect dates (281 of whom were said to still be customers) and was reviewing the other cases cited by Lawsky; it later took back those figures and said the number of New Yorkers who received such letters was expected to be larger.
Shares of Ocwen fell 18%, to $21.48.
Ocwen, the country's largest nonbank mortgage servicer, has been under regulatory scrutiny over the past year, as consumer protection regulators scrutinize nonbank servicers' ability to adequately administrate loans. Servicers' portfolios have more than doubled in just a year's time, as banks attempt to shed their servicing rights before new regulatory capital rules take effect.
In September Ocwen told monitors the backdating issue was an isolated incident, but the issue is far larger, Lawsky's letter said. There may have been 6,100 problem letters sent to borrowers before Ocwen addressed the issue in May 2014, after an employee alerted a monitor of the problem five months prior. The company told monitors it responded and corrected the issue in May.
"Each of these representations turned out to be false," the letter said.
The problem may prove to be even more widespread, perhaps affecting hundreds of thousands of borrowers, according to the letter.
The Consumer Financial Protection Bureau has also tightened the screws on servicers. It took its first enforcement action under new servicing rules last month against Flagstar Bank after claiming the Michigan bank blocked customers' attempts to save their homes.
That enforcement action underscored the regulatory headaches facing nonbanker servicers Ocwen and Nationstar Mortgage Holdings, Guggenheim analyst Jaret Seiberg told clients recently. "The policy environment will make it more expensive to be a mortgage servicer, which will hurt profitability," he wrote.
Seiberg added in a follow-up note Tuesday, after the release of the Lawsky letter, that "if Ocwen intentionally misdated letters to deprive borrowers of modifications, then it could be exposed to serious legal liability," especially if the loans in question were backed by Fannie Mae or Freddie Mac.
Highly critical lawmakers in Congress have called for capital requirements on nonbank servicers. Ocwen, Nationstar and others responded last month and are organizing a new trade group in Washington to represent their interests.
Isaac Boltansky, an analyst at Compass Point Research & Trading, believes the Federal Housing Finance Agency will this fall outline capital and liquidity standards for servicers, which could go into effect as early as first quarter 2015, he said last month after Ginnie Mae released a 20-page assessment of the sector.
Editor's note: The response by Ocwen in graph 5 has been updated to reflect the company's revision of its initial statement.