Federal and state regulators unleashed a fusillade of lawsuits and enforcement orders Thursday against Ocwen Financial Corp., a large mortgage servicer, aimed at curbing what they said had been years of flagrant and repeated abuses, including illegal foreclosures, deceptive fees and extensive mishandling of customers' home loan payments.
Some of the regulatory orders directly questioned Ocwen's ability to continue operating, and the market responded accordingly: Shares of the company fell 54 percent, closing at $2.49 per share.
Twenty-two state mortgage regulators filed enforcement orders intended to limit or freeze Ocwen's ability to acquire new mortgage loans to service in their states. Servicing a loan involves billing customers and funneling payments to the lender; Ocwen, which is not a bank, specializes in doing so for subprime mortgages home loans issued to people with less-than-stellar credit.
Wall Street's mishandling of subprime home loans was a major catalyst of the 2008 financial crisis, in which Ocwen was a player, scooping up troubled loan portfolios to service. Ocwen's major growth spurt was tied in part to the implosion of Taylor, Bean & Whitaker. After the Ocala mortgage lender tumbled into bankruptcy and scandal in 2009, Ocwen inherited many of it loans, but was quick to find itself caught up in customer complaints of payments that weren't credited and unwarranted foreclosure actions.
The latest round of accusations stems from activity in recent years.
In a statement, Ocwen said it was "proud of its corporatewide commitment to a culture of integrity, transparency, compliance and service."
The state regulators, however, said the company was failing at some of its most basic duties and needed to be stopped.
Among the many actions taken against Ocwen on Thursday, the Consumer Financial Protection Bureau and Florida's attorney general filed lawsuits accusing the company of making sloppy mistakes at nearly every stage of the collections process, inflicting frustration and millions of dollars in added costs on borrowers trying to pay back their home loans.
Ocwen denied the charges, calling them "inaccurate and unfounded."
This is Ocwen's second major run-in with the consumer bureau. In 2013, the company agreed to pay $2.1 billion to settle a similar set of accusations.
At the time, the company pledged to reform, but instead it has "continued to fall down on the job for borrowers," said Cara Petersen, a lawyer at the consumer bureau.
More than 580,000 customers have complained to Ocwen about errors in the last two years, according to the consumer bureau. Some of the company's "systemic and significant" mistakes cost its customers their homes, Richard Cordray, the bureau's director, said in a news conference.
Ocwen, which collects payments from 1.4 million borrowers on mortgage debt of more than $200 billion, said it would review the state regulators' orders. It intends to fight the consumer bureau's lawsuit and called it "an unfortunate example of overreaching."
"Ocwen strongly disputes the CFPB's claim that Ocwen's mortgage loan servicing practices have caused substantial consumer harm," Ocwen said Thursday. "In fact, just the opposite is true. Ocwen believes its mortgage loan servicing practices have and continue to result in substantial benefits to consumers above and beyond other mortgage servicers."
But some state regulators' legal filings said the company was failing at core responsibilities and might be unable to fix the problems.
Ocwen has made significant errors in handling its customers' escrow accounts, according to a cease-and-desist order filed by Ray Grace, North Carolina's commissioner of banks. Those accounts contain funds that customers give to their mortgage servicer to cover property tax and home insurance bills. The servicer is then supposed to make those payments on the customer's behalf.
The North Carolina regulator said Ocwen often failed to make payments on time an error that can burden homeowners with added fees or even, in extreme cases, put their homes at risk. When state regulators pressed Ocwen to reconcile all of the funds held in its escrow accounts, the company responded that doing so "would cost $1.5 billion and be well beyond Ocwen's financial capacity to fund," according to North Carolina's order.
Grace said in a statement that the company's negligence had gone on too long.
"Ocwen has consistently failed to correct deficient business practices that cause harm to borrowers," Grace said. "We cannot allow this to continue."
John Lovallo, a spokesman for Ocwen, said the company had no immediate comment on North Carolina's accusations.
The consumer bureau's lawsuit portrays a company with shoddy technical systems that were wholly inadequate for the duties the company needed to handle. Ocwen's own head of servicing described its systems as "absolute train wreck" in an internal message sent in 2014 to Ocwen's chief executive, Ronald M. Faris, and cited in the consumer bureau's lawsuit.
"I know there's no shot in hell, but if I could change systems tomorrow, I would," the executive wrote, according to the lawsuit. Even a task as simple as getting the system to stay online was a challenge, the order said.
Loans acquired from other servicers were imported to Ocwen's proprietary management system and were supposed to be checked for errors made in the conversion. But accounts often lagged for months or more before that verification and mistakes were rife, according to the consumer bureau. In one particular month, Ocwen found errors in 90 percent of the loans it checked, the bureau said in its lawsuit.
Problems with mortgage servicers are particularly vexing for homeowners, according to regulators, lawyers and borrowers, because they have no choice over the company that handles their loan. Mortgage lenders can assign the servicing rights on their loans to any company they choose.
"A homeowner is forced into a consumer relationship with someone who they did not choose and cannot fire," said Marc Dann, a lawyer in Cleveland who has represented many borrowers in cases against Ocwen and other mortgage servicers.
For borrowers, Ocwen's missteps sometimes had grave consequences.
Kathleen Hanover of Dayton, Ohio, had just returned from a trip to Vancouver, Canada, in 2014 when she got a nasty homecoming: Bank of America had transferred the rights to collect her mortgage payments to Ocwen, which was foreclosing on her home.
Hanover, 51, said she had been in the midst of seeking a loan modification from Bank of America. "I was in such a state of shock," she said. "It was a total nightmare."
With the help of a lawyer, she was able to get a modification from Ocwen, but she has continued to fight with the company about other aspects of her loan, she said.
Diane Wynn of Queens, New York, was equally perplexed when she learned last March that Ocwen was foreclosing on her home. The company had just approved her for a trial mortgage modification.
"It's absolutely crazy that they approved a foreclosure after they had already approved her for a modification," said Aisha A. Baruni, a staff attorney with Queens Legal Services.
Such mistakes were common, according to the consumer bureau.
It cited one borrower's complaint: "It is very embarrassing to come home and see a notice on my door of an impending foreclosure especially when I have made and continue to make my mortgage payments to Ocwen."
The story of Ocwen, founded in 1988, is one of rapid growth. After the financial crisis, the company ballooned in size, rapidly acquiring mortgage servicing business from banks.
Regulators and consumer watchdogs worried that the company's fast expansion created new risks for already beleaguered borrowers. Many found themselves battling stalled mortgage modifications and other problems, just as they were getting on firmer financial ground.
Regulators in New York and other states zeroed in. In December 2014, Benjamin M. Lawsky, then the leader of New York's Department of Financial Services, reached a settlement with Ocwen, which agreed to pay $150 million toward relief measures and to submit to scrutiny by an independent monitor. In an extraordinary move, William C. Erbey, the company's founder, stepped down as chairman as part of the deal.
Recently, Ocwen seemed to be emerging from the regulatory cloud. Just last month, Maria T. Vullo, now New York's top financial regulator, modified the state's settlement with Ocwen, agreeing to remove the monitor and consider easing restrictions on Ocwen's ability to expand. California also lifted some restrictions on Ocwen this year.
On Thursday, Vullo issued a statement in support of the consumer bureau and the other state regulators' actions and said her office would continue "enhanced oversight" of Ocwen.
"Ocwen has made progress in correcting these deficiencies but still has more work to do," she said.