Ocwen Financial Corp. will provide $2 billion in principal reductions to underwater borrowers, as well as refund $125 million to almost 185,000 borrowers who lost their homes to foreclosure, under a settlement announced Thursday that resolves allegations against the nation's largest nonbank servicer of home mortgages.
The proposed consent decree addresses "years of systemic and significant" servicing issues, said Richard Cordray, director of the Consumer Financial Protection Bureau.
Struggling Illinois homeowners whose mortgages are serviced by Ocwen will receive more than $91 million in primary mortgage principal reductions, and at least 7,900 borrowers whose homes were sold in a foreclosure sale from Jan. 1, 2009, through Dec. 31, 2012, will be eligible for cash payments, according to Illinois Attorney General Lisa Madigan.
"Similar to the national mortgage settlement, this settlement will provide loan refinancing and direct payments to harmed borrowers," she said.
Overall, the three-year settlement should benefit about 25,000 former and current Illinois homeowners with Ocwen-serviced home loans, according to the Illinois Department of Financial and Professional Regulation.
The proposed order was filed Thursday in U.S. District Court for the District of Columbia by the financial protection bureau and the attorneys general of Illinois and 48 other states and Washington, D.C. It is the latest settlement to address fraudulent mortgage servicing practices and comes 22 months after a $25 billion national mortgage settlement with the nation's five largest banks.
Atlanta-based Ocwen is the fourth-largest mortgage servicer in the nation, having made several acquisitions in recent years. Along with its purchase of competitors Homeward Residential Holdings LLC, formerly called American Home Mortgage Servicing Inc., and Litton Loan Servicing LP, it has acquired large mortgage servicing portfolios from some of the nation's largest banks.
Investigators found evidence that, among other things, Ocwen gave borrowers false or misleading information, did not honor trial modifications begun by previous servicers, charged borrowers unauthorized fees and denied mortgage loan modifications to eligible borrowers.
"Homeowners are stuck with their servicer, no matter how good or how bad that servicer turns out to be," Cordray said in a call with reporters. "Too often, trouble began as soon as the loan was transferred to Ocwen. Ocwen made troubled borrowers even more vulnerable to foreclosure."
The company will contact affected borrowers directly, but they can contact the company at 800-337-6695, or the Illinois attorney general's homeowner help line at 866-544-7151.
Next month, new rules from the consumer bureau will begin governing how all companies service home loans. While there is some overlap between the rules and the settlement, Ocwen will be subject to higher standards than other companies, Cordray said.