TheMReport — News and strategies for the evolving mortgage marketplace.
Issue link: http://digital.themreport.com/i/522162
Th e M Rep o RT | 51 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 Department LocaL eDition SERVICING Judge rules Wells Fargo Breached terms of 2010 mortgage settlement Company representatives will meet with affeCted homeowners to remedy errors. CALIFORNIA // A federal judge ruled this week that Wells Fargo breached a nationwide 2010 settlement involving adjustable- rate mortgages, saying that the bank denied assistance to bor- rowers who were seeking loss mitigation solutions, according to multiple media reports. The lawyers representing the homeowners were contending that Wells Fargo failed to prop- erly evaluate thousands of bor- rowers who were at imminent risk of default for loan modifica- tions or other type of assistance to prevent foreclosure, and that the bank used the wrong methods to determine financial hardship on the part of the bor- rowers. The San Francisco-based bank had agreed to grant loan modifications potentially worth up to $2.7 billion, according to the 2010 settlement. The original settlement also called for the bank to pay class members a total of $50 million. Judge Richard Seeborg, in the U.S. District Court of Northern California, ruled that Wells Fargo had breached the terms of the settlement by using "evolving and perhaps ill-defined standards" when determining borrowers' eligibility for a loan modification, according to one report. At the same time, however, Seeborg told both sides they had had "almost no idea" what they agreed to in the settlement. "We're very pleased," Jeffrey Berns, counsel for the plaintiffs, told MReport. "The court has found on three separate occa- sions that Wells Fargo breached the settlement agreement–in re- porting, pre-screening, and now imminent threat of default. And it's only the beginning. We're hoping that Wells Fargo will do the right thing." Seeborg instructed representa- tives from Wells Fargo to meet with the homeowners and determine a way to correct the violations, which may include allowing some homeowners to reapply for loan modifications. The judge gave both sides two weeks to submit either joint or competing proposals, according to the report. Wells Fargo spokesman Tom Goyda said "we are reviewing the decision and will be work- ing to provide the judge with the additional information he has requested." The original 2010 settle- ment resolved complaints over Wachovia's portfolio of "pick- a-payment loans" which Wells Fargo inherited when it acquired Wachovia for $15.1 billion in 2008. The pick-a-payment loans originally provided borrowers with lower mortgage payments, but adjustable rates later caused payments to escalate, resulting in massive defaults that led to the nationwide financial crisis. Berns, of the Woodland Hills, California-based firm Berns Weiss, says his firm planned to bring at least three more cases to the court in which they believe Wells Fargo is guilty of breach- ing the terms of the settlement. investment advisor defends Ocwen's servicing Practices in White Paper ll funds says Claims of 'failure to perform' are flawed. PENNSYLVANIA // In response to accusations from institutional investors against Ocwen Financial of "failure to perform," investment advisor LL Funds has come to the defense of the embattled mortgage servicer in the form of an independent 26-page white paper titled "In Defense of Ocwen Servicing" released April 24. Atlanta-based Ocwen, one of the largest non-bank mortgage servicers in the country, has had a tumultuous year in 2014 that capped with a loss of more than half a billion dollars for Q 4. Then in January a group of institutional investors that included Black Rock, MetLife, and Pimco sent a "failure to perform" notice to trustees of Ocwen-serviced deals accusing Ocwen of failing to collect on $82 billion worth of home loans. Philadelphia-based LL Funds, which manages more than $1.5 billion market value non-Agency residential mortgage-backed securities, said in the white paper that the institutional investors' claims of non- performance on the part of Ocwen, made through law firm Gibbs and Bruns, are flawed. LL Funds wrote that when certain factors, namely the fact that Ocwen services a much larger portion of subprime borrowers than other servicers and Ocwen has given marginal borrowers a second and third chance, that "Ocwen's performance is better than other servicers." On Gibbs and Bruns' claim that "Ocwen's imprudent modifi- cation practices result in material higher re-default and re-modifica- tion rates when fairly compared to modifications performed by other servicers," LL Funds says this comparison is "anything but 'fair.'" The fact that Ocwen services a larger number of sub- prime borrowers, who represent the weakest tier of borrowers in the credit spectrum, and are expected to have higher default rates by virtue of their weak credit, has the potential to skew Ocwen's numbers. In the paper, LL Funds estimates the loss—both past and future—associated with actual loan modifications undertaken by Ocwen to be between 42 and 53 percent, a "robust" result. "There is no reasonable estimate of modification losses that comes close to the estimated losses that would have been realized had Ocwen pursued liquidation rather than modification," the report read. LL Funds went on to say that Ocwen deserves credit for its aggressive modification practices and the bondholders are better off as a result. "Such legal action (the "failure to perform" notice sent to Ocwen trustees) can harm Ocwen significantly and perhaps even lead to changes in who ultimately services these RMBS deals," LL Funds wrote. "We believe a servicing transfer away from Ocwen, in the unlikely event that it were to occur, would harm both bondholders and homeowners."