Ocwen Financial, a provider of residential and commercial mortgage loan servicing, allegedly backdated thousands of time-sensitive letters to mortgage clients and did not take action to fix the issue despite repeated notices of concern, according to New York regulators, Tuesday.
In the majority of cases, borrowers received a letter in the mail that denied mortgage loan adjustments—letters that were dated more than 30 days before it arrived, wrote Benjamin Lawsky, superintendent of New York's Department of Financial Services, in a letter to Timothy Hayes, Ocwen's executive vice president & general counsel. Borrowers are only allowed 30 days to appeal the denial, so the appeal period had largely passed by the time they got the letter, he wrote.
Due to volatility, trading was briefly halted three times for Ocwen. Trading has since resumed and shares were down more than 20 percent.
Lawsky demanded in the letter that Ocwen must fix the record-keeping issues in its system immediately and that it must respond to all requests "promptly and accurately." If the Department decides that Ocwen's system and processes cannot be trusted, it will "take whatever action is necessary to ensure that borrowers are protected," Lawsky wrote.
"We deeply regret the inconvenience to borrowers who received improperly dated letters as a result of errors in our correspondence systems," according to an Ocwen spokesperson, in a release to CNBC. "As always, our goal is to avoid foreclosure. In the case of the 283 borrowers in New York who received letters with incorrect dates, 281 are currently borrowers with us. We are continuing to review the rest of the cases." The person added that the company believes the backdating issue, identified to date, has been resolved and that the company will continue investigations in full cooperation with regulators.
An employee had voiced concern about the backdating issue in November 2013 to the company's Vice President of Compliance, Lawsky wrote. Ocwen did nothing to investigate, he said. Five months of inaction later, the same employee raised the issue again.
"Ocwen's indifference to such a serious matter demonstrates a troubling corporate culture that disregards the needs of struggling borrowers," Lawsky wrote.
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Ocwen failed to meet obligations under federal and New York law that requires timely communication with borrowers regarding foreclosure proceedings and mortgage modifications, Lawsky alleged in the letter. However, the scope or severity of the company's non-compliance is "impossible to determine" because of the company's questionable record-keeping system, he said.
Ocwen originally told the Department that the issue was isolated to a specific type of letter, that the company discovered the issue in April of 2014 and that it had implemented a solution to fix its system in May 2014, the letter said. But Lawsky writes that all three allegations "turned out to be false."
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"What is clear is that [Ocwen] still did not notify regulators, borrowers, or investors of this significant issue, nor did Ocwen personnel conduct due diligence to ensure that the issue was firmly resolved through the supposed fix in May 2014, or take steps to determine what impact ... may have already had on borrowers," Lawsky wrote.