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44 | Th e M Rep o RT O r i g i nat i O n S e r v i c i n g a na ly t i c S S e c O n da r y m a r k e t SERVICING the latest new york regulator accuses Servicer of Sending Backdated Foreclosure notices n ew York's top bank- ing supervisor once again set his sights on Ocwen Financial Corporation, saying the non- bank servicer sent thousands of foreclosure warnings to borrow- ers months after it was too late to save their homes. In a letter, Benjamin Lawsky, superintendent of financial services for New York, said an investigation of Ocwen's mort- gage servicing practices turned up more than 7,000 letters sent to borrowers that had been back- dated and sent only after their payment deadlines had passed. "In many cases, borrowers re- ceived a letter denying a mortgage loan modification, and the letter that was dated more than 30 days prior to the date that Ocwen mailed the letter. These borrow- ers were given 30 days from the date of the denial letter to appeal that denial, but those 30 days had already elapsed by the time they received the backdated letter," Lawsky said in the letter, which was addressed to executives and board directors at Ocwen. In other cases, Lawsky said, Ocwen's systems showed borrowers facing foreclosure received notices to cure their de- fault months after the cure date had already passed. In addition, Lawsky claims the company ignored concerns brought up by an employee that its letter-dating processes were inaccurate and misrepresented the severity of the problem to his team when questioned about it. "The existence and pervasive- ness of these issues raise critical questions about Ocwen's ability to perform its core function of servicing loans," Lawsky said. The letter is just the latest regulatory headache for Ocwen, the largest non-bank operating in the mortgage servicing space. The company has seen tighter scrutiny from Lawsky and other federal and state bank regulators in the last year as they turn their attention to independent servicers, who have grown significantly as banks come under heavier regulation. Recently, a group of state bank supervisors—including a representative from Lawsky's New York office—announced the formation of a new task force to analyze growth and practices at non-bank servicers in the hope of developing workable servicing standards for that segment. In a statement, Ocwen said the backdating issue stems from soft- ware errors in correspondence systems. While the company is not certain how many borrow- ers received backdated letters, it believes it has resolved the issues that have been found so far. "We are continuing to review the rest of the cases," the com- pany said. "We are working with and fully cooperating with DFS and the Monitor to address their concerns." In the meantime, Ocwen an- nounced that the company has taken a $100 million charge for a potential settlement regarding claims that Ocwen sent back- dated foreclosure notices to thou- sands of borrowers. In a conference call with ana- lysts on Thursday, Ocwen execu- tive chairman William Erbey left open the possibility that legal costs could drive the $100 mil- lion amount higher. "We reached a point where we were far enough (along) in discussions with the regulator, that our best estimate of the exposure was $100 million at the end of the (third) quarter," Erbey said. "We're trying to be clear that they could be materially dif- ferent, but we really don't know." Ocwen initially blamed the backdated letters on computer errors; the company said that about 70 percent of the borrow- ers who received the backdated foreclosure letters received loan modifications, and that less than 5 percent of them actually went to foreclosure. According to CFPB's con- sumer complaint database, Ocwen has been the subject of more than 13,500 mortgage loan-related complaints from consumers since the Bureau began fielding them nearly three years ago. Consumers logged a higher number of mortgage-loan related complaints with CFPB for only two institutions, Bank of America and Wells Fargo. "I want to emphasize that Ocwen takes great efforts to keep borrowers in their homes and to avoid foreclosures," Erbey said in a release. "Ocwen recent- ly reached a significant milestone by making its 500,000th loan modification, including 290,000 HAMP (Home Affordable Modification) modifications. Ocwen is the leader in foreclo- sure prevention, with 44 percent more HAMP modifications than any other servicer. We work very hard to keep borrowers in their homes, and that is why we take the concerns raised by the New York Department of Financial Services so seriously. We have numerous compensat- ing controls in place, which we believe should have prevented borrower harm. Nonetheless, Ocwen is proactively creating a process whereby any borrower who believes they received a misdated letter and were harmed as a result, will have the op- portunity to receive a complete file review to resolve any issues caused by the misdating." Analysts believe that Ocwen's regulatory challenges will pre- vent the company from pur- chasing $39 billion in mortgage servicing rights from Wells Fargo, one of the nation's largest bank mortgage servicers. Meanwhile, Ocwen announced a third-quarter net loss of $73.5 million, or 58 cents per share in its Q 3 financial statement.