Ocwen ordered to pay $2.1 billion settlement for cheating homeowners

Dec. 19--Debt collector Ocwen Financial Corp. will pay $2.1 billion to settle allegations that it cheated thousands of homeowners, federal and state regulators said Thursday.

The mortgage servicer is accused of heavy-handed tactics, including failing to promptly credit borrowers' loan payments and improperly forcing them into expensive homeowners-insurance policies. Ocwen denied loan modifications to homeowners who should have received them and shortchanged homeowners through "servicing shortcuts and unauthorized fees," said Richard Cordray, head of the U.S. Consumer Financial Protection Bureau.

"Ocwen violated federal consumer financial laws at every stage of the mortgage servicing process," Cordray said.

Under the settlement, Ocwen pays no fine but agrees to reduce mortgage balances by $2 billion. Ocwen also must make $125 million in cash payments to 185,000 borrowers who lost their homes to foreclosure between Jan. 1, 2009, and Dec. 31, 2012.

Florida's share of the principal reduction, some $342 million, is the highest in the country, Florida Attorney General Pam Bondi said. Ocwen customers will see their loan balances slashed by an average of $50,000 per loan, she said.

"Florida has the highest delinquency rate in the country, and this settlement will go a long way, we hope, in helping Floridians stay in their homes," Bondi said Thursday.

Some 26,000 former Ocwen customers in Florida already have lost their homes. They'll be eligible to receive payments of about $1,200 each, Bondi said.

The settlement includes two companies Ocwen bought, Homeward Residential Inc. and Litton Home Servicing. Ocwen was based in West Palm Beach for years before it moved its headquarters to Atlanta and then the U.S. Virgin Islands.

Homeowners have complained about Ocwen's hardball tactics for years, even before the housing boom and bust. Jupiter homeowner Deborah Stockhammer said Ocwen forced her into a more expensive insurance policy six months before her regular plan was to expire. The move, which increased her payment from $1,800 to $3,500, pushed the already struggling 61-year-old further into default and a dizzying cycle of mounting fees.

Her home of 36 years on Chickasaw Street was saved from foreclosure last year when Ocwen agreed to take federal money from the state's $1 billion Hardest Hit program.

But after accepting about $28,000 from the plan, Ocwen said Stockhammer needed to pay another $7,680 in expenses that she didn't understand. Ocwen employees called her every day, even on Sunday, she said. She disputed the charges, but said she could never get an answer about where the charges came from.

"I was getting this paperwork that had all these fees and I didn't know what they were," Stockhammer said. "I still don't know."

On Nov. 21, Stockhammer's house went back into foreclosure.

"It was larcenous what they did to me," she said.

At least one former Ocwen client is suspect of what kind of restitution he'll receive from the settlement.

John Lebeau of North Palm Beach had been approved for a loan modification through Saxon Mortgage Services, which was acquired by Ocwen in 2012.

Ocwen told him he needed to reapply for the modification because paperwork was lost in the transition. Ocwen then denied him based on the exact same documents he had been approved with under Saxon, he said. At one point, Lebeau said he was trying to make payments under the Saxon agreement, but didn't even know where to send his checks.

In October, the 55-year-old father of two was evicted from his home and has had trouble finding a rental because of his decimated credit.

"I'm glad the government is trying to hold these companies accountable, but I don't see the money benefiting every homeowner affected," Lebeau said. "Still, even if it's $10, I'll take it."

Authorities said Ocwen will be forced to pay a penalty if it hasn't followed through on its promise of $2 billion in principal reduction in three years.

"Ocwen is very much on the hook for getting this done," Cordray said.

Ocwen's settlement is similar to last year's deal between regulators and the nation's five largest banks, Bondi said. That $25 billion deal was arranged among 49 state attorneys general and Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial.

Shares in Ocwen (NYSE: OCN) have been on a tear, turning Ocwen Chairman William Erbey into a billionaire. His stakes in Ocwen and spinoffs Altisource Portfolio Solutions (Nasdaq: ASPS), Home Loan Servicing Solutions (Nasdaq: HLSS), Altisource Residential Corp. (NYSE: RESI) and Altisource Asset Management (NYSE: AAMC) were worth nearly $3 billion as of Thursday.

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