Ocwen Financial (OCN) in Atlanta will get a new layer of oversight.

New York's top financial services regulator is requiring the mortgage servicer to install a monitor for two years to oversee the company's practices, the state's Department of Financial Services announced Wednesday.

Ocwen, one of the country's largest collectors of payments on loans to borrowers who have tarnished credit histories, has 20 days to hire a monitor acceptable to the department, according to an order signed by the company and Benjamin Lawsky, the state's superintendent of financial services.

The monitor will assess the sufficiency of staff that Ocwen assigns to delinquent loans; its policies governing alternatives to foreclosure; and the fairness of its fees, according to the order. Ocwen is said to service roughly 40,000 home loans in New York.

The monitor will have 90 days to file a report that details steps by Ocwen to correct what the department terms "noncompliance" with state rules governing servicers and a Sept. 2011 agreement between Ocwen and the department that governs its consumer practices.

"Following complaints about Ocwen's servicing practices, we conducted a targeted exam of Ocwen's performance and discovered gaps in the company's compliance," Lawsky said in news release. "The department is requiring the company to hire a monitor so that we can be sure that the reforms are implemented and homeowners have a real chance to avoid foreclosure."

Ocwen did not respond immediately to a request for comment about the order, which was reported by the Wall Street Journal on Tuesday.

Ocwen has in some instances used abusive practices, including neglecting to notify borrowers before foreclosing, failing to file sufficient legal documents and pursuing foreclosure actions against borrowers who seek to modify their loans, according to the order.

The order comes amid pending deals by Ocwen to buy Homeward Residential Holdings, a mortgage servicer, from private-equity firm WL Ross & Co. for $750 million in a deal the company said it expects to close this year.

In October, Ocwen and its partner Walter Investment Management successfully bid $3 billion for the servicing unit of Residential Capital, a unit of Ally Financial that filed for bankruptcy in May. In November a bankruptcy court in Manhattan approved Ocwen's bid for the ResCap assets.

A spokesman for Lawsky's office did not immediately confirm what effect, if any, Wednesday's order may have on the company's ability to win regulatory approval for either deal.

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