In April of 2017, the Consumer Financial Protection Bureau (CFPB) sued Ocwen Financial Corporation (Ocwen) and its affiliates for supposed systematic deficiencies in their mortgage servicing business. Ocwen’s alleged deficiencies included “improperly calculated loan balances, misapplied borrower payments, failure to correctly process escrow and insurance payments, and failure to properly investigate and make corrections to consumer complaints.” Ocwen’s alleged inability to perform the basic necessities of a mortgage servicer demonstrates both potential pitfalls for mortgage servicers, and what borrowers can look out for to avoid future financial harm. The case is pending before the U.S. District Court for the Southern District of Florida, West Palm Beach Division, as Case No. 17-CV-80495.
In 2009, Ocwen spun off its IT department into a new company called Altisource Portfolio Solutions through which it owned, and then licensed, Altisource’s REALServicing platform as its loan-servicing system. However, the CFPB claims REALServicing was not able to properly verify prior servicer fees and corporate advances, purportedly resulting in an inaccurate input of borrower loan information. The CFPB also alleges that Ocwen employee attempts to correct these errors in the system failed, and that the information remained in error. According to the CFPB lawsuit, REALServicing did not update “critical data fields such as loan maturity date, loan term, first payment date, balloon term and first interest rate cap.” The system’s deficiencies purportedly compelled manual entry by Ocwen employees, which led to further error due to the high frequency of loans and lack of automation.
The CFPB argues that Ocwen relied too heavily on manual entry of borrower information. Unfortunately, as the suit indicates, “manual workarounds and processes introduce the risk of human error.” According to the CFPB, Ocwen employees manually input and process borrower information for over 45,000 transactions every day. As a result of these issues, the lawsuit alleges that borrowers received inaccurate statements, billing, payment records and account information. The CFPB claims payment processing errors due to manual entry tremendously affected borrowers. Heavy reliance on manual entry and Ocwen’s inability to submit timely statements also affected borrowers’ escrow accounts, according to the CFPB.
The CFPB claims that the escrow statements sent by Ocwen contained incorrect borrower information such as account histories, balances and payments. In addition, the CFPB complaint claims that borrowers’ “insurance premiums were paid twice in some instances, and premiums were also sent to the wrong insurance companies.” Evidently, Ocwen did not take precautions in creating policies or systems to ensure that its borrowers receive timely statements, correct account information and proper process. According to the CFPB, this error affected 52 percent of Ocwen’s business, totaling 800,000 borrowers.
The CFPB claims that Ocwen did not develop a strategy for personnel to correct errors other than by monetary means. The CFPB complaint asserts that “fee waivers and credit reporting corrections” were in place, but there was no system to help employees remedy manual errors; rather, workers were left to determine corrective measures as they deemed fit.
The CFPB questions Ocwen’s attempt in taking preventative measures in system input and processing to ensure borrower protection. The CFPB complaint against Ocwen reveals how “errors in payment processing, escrow and insurance [can potentially] drive borrowers into foreclosure,” create inaccurate billing and wrongful charges, and emotionally drain borrowers.
The CFPB’s suit against Ocwen serves as something of a roadmap of potential issues for other mortgage servicers to watch out for. Although the CFPB’s authority is under fire in Washington, the issues raised by the CFPB could also be the subject of lawsuits by state attorneys general offices or counterclaims by individual borrowers, and indeed, the CFPB’s activity in bringing these claims against Ocwen may inspire follow-on suits. As a result, mortgage servicers will want to act to ensure that their internal processes are not subject to the flaws the CFPB describes in its complaint.