Ocwen Financial, a firm that collects the payments on millions of mortgages, has fallen afoul of another regulator.
The monitor of the National Mortgage Settlement announced on Tuesday that his office could not rely on information provided by Ocwen. That settlement, struck in 2012, requires banks and firms like Ocwen to meet standards that aim to ensure that struggling borrowers are treated properly.
The monitor, Joseph A. Smith Jr., regularly reviews whether the firms are in compliance with the standards. To do so, he relies to a large extent on reports from an “internal review group” inside each of the institutions that are part of the settlement.
“After my team and I reviewed numerous documents and interviewed several Ocwen personnel, I concluded that I could not rely on the work of Ocwen’s I.R.G. for the first half of 2014,” Mr. Smith said in a statement, referring to the review group. He added that an employee of Ocwen in May contacted the monitor, contending that there were serious deficiencies within the review group.
The company said it would work to address the monitor’s concerns.
“We will continue to support the monitor’s efforts to ensure that we are fully compliant with all aspects of the National Mortgage Settlement,” Ronald M. Faris, Ocwen’s chief executive, said in a statement. “We are committed to delivering best-in-class servicing as we work to help struggling borrowers keep their homes.”
The questions raised by Mr. Smith add to regulatory actions that have weighed on Ocwen’s business and helped cut its stock price by more than half this year.
Benjamin M. Lawsky, the superintendent of New York State’s Department of Financial Services, has assailed Ocwen on several fronts, most recently contending that Ocwen backdated letters to borrowers. Mr. Smith said on Tuesday that he had asked Ocwen to correct any issues relating to backdated letters.
Ocwen ballooned in size after the financial crisis of 2008, by purchasing so-called loan servicing business from banks who no longer found the activity financially attractive. Servicing involves collecting mortgage payments, arranging loan modifications for borrowers in default and carrying out foreclosures. And for a long time, Ocwen had little trouble convincing investors that it did servicing more efficiently.
But the company’s growth prospects came under threat after Mr. Lawsky’s office intervened. The regulator asserted that Ocwen had issues that might hinder it from carrying out its duties as a mortgage servicer. Mr. Lawsky required that a large purchase of servicing rights from Wells Fargo be delayed. That deal fell through completely last month.
The National Mortgage Settlement took aim at big banks, including JPMorgan Chase and Bank of America, that mishandled the tidal wave of foreclosures that followed the financial crisis of 2008. Ocwen became part of the settlement after it bought mortgage servicing business from Ally, a lender that was among the original participants in the settlement.
After finding fault with Ocwen’s review group, Mr. Smith has asked an outside accounting firm, McGladrey, to determine whether Ocwen had met the settlement’s standards.
In an interview, Mr. Smith said that he expected to report on McGladrey’s findings in February or March next year. The monitor first allows a firm to try to fix its problems with its servicing. But he can also resort to fines. “That’s a pretty heavy hammer that we have got, if we need it,” Mr. Smith said.
Ocwen has installed new management in the internal review group that reports to the mortgage settlement monitor. In addition, the review group now reports directly to a compliance committee on Ocwen’s board.
One of Mr. Lawsky’s concerns has been that potential conflicts between Ocwen and related firms may harm borrowers. Those ties may come under greater scrutiny after Mr. Smith’s announcement.
William C. Erbey, a founder of Ocwen and its chairman, is also the chairman and largest shareholder of Altisource Portfolio Solutions, a firm that provides Ocwen with a computer system for servicing loans. One question regulators may have is whether Ocwen used that system, called RealServicing, for the servicing business bought from Ally – and whether that system was up to the task of complying with the National Mortgage Settlement’s standards.
“We do not believe anything particular about RealServicing, as a system, caused the issues identified in the report,” Margaret Popper, a spokeswoman for Ocwen, said. “Unlike other servicers, Ocwen’s I.R.G. was tasked with testing on two platforms simultaneously – and that complexity may have been challenging for Ocwen’s I.R.G. during the applicable time period.”