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Ocwen Crashes Over 50% After N.C. Bank Commissioner Issues Cease And Desist Letter

Courtesy of ZeroHedge. View original post here.

Former hedge fund hotel darling Ocwen Financial plunged over 50% after the North Carolina Commissioner of Bank and state mortgage regulators from over 20 states issued a Cease and Desist order to subsidiaries of Ocwen to address mishandling of consumer escrow accounts and a deficient financial condition. Specifically, the order prohibits the acquisition of new mortgage servicing rights and the origination of mortgage loans by Ocwen Loan Servicing.

The summary findings from the C&D (link)

The Commissioner of Banks (“Commissioner”) having determined that Ocwen Financial Corporation has engaged in, or is engaging in, or is about to engage in, acts or practices constituting violations of state and federal law and applicable regulations, hereby issues the following FINDINGS OF FACT and ORDER TO CEASE AND DESIST.

And some further details:

During the examination, the Examining States identified several violations of state and federal law, including, but not limited to, consumer escrow accounts that could not be reconciled and willful and ongoing unlicensed activity in certain states. Additionally, it was determined that Ocwen’s financial condition was significantly deteriorating.

Although the Examining States were unable to gather comprehensive documentation of the extent of unlicensed activity because Ocwen’s management failed to respond to requests for information in a timely manner, the examination found that Ocwen subsidiaries were conducting unlicensed servicing activity in numerous jurisdictions. This unlicensed activity was cited in the report of exam. The Examining States had numerous conversations with the Board of OFC in which the Examining States communicated that these continuing violations were unacceptable and would not be tolerated. Although OFC partially addressed the unlicensed activity two years after it was initially cited, unlicensed activity is believed to continue in certain jurisdictions.

The MMC examination found that Ocwen has been unable to accurately reconcile many of the consumer escrow accounts in its portfolio. Consumer escrow accounts are accounts that contain consumer funds held for the payment of taxes and insurance. The MMC examination further found that Ocwen failed to make timely disbursements to pay for taxes and insurance from escrow accounts on numerous loans. The MMC examination also found that Ocwen routinely sent consumers inaccurate, confusing, and/or misleading escrow statements.

In 2015, Ocwen failed to provide key financial documents and reconcilements of its financial statements to regulators.

Based on the findings of the examination and subsequent communications with OFC, the state regulators and Ocwen entered into a Memorandum of Understanding (MOU) on December 7, 2016.

The MOU required Ocwen to retain an independent auditing firm to perform a comprehensive audit and reconciliation of all consumer escrow accounts, with a report to be furnished by the Auditor to Ocwen and the MMC within five business days thereafter. The audit plan was to be submitted to, and approved by, the MMC no later than January 13, 2017.

Ocwen’s response to the state regulators on January 13, 2017, was that the reconciliation of escrow accounts, which is paramount in ensuring the appropriate management of consumer funds, would cost $1.5 billion and be well beyond Ocwen’s financial capacity to fund. Ocwen has suggested instead that a sample of 457 escrow accounts be reconciled out of 2.5 million active first lien escrow accounts that Ocwen has serviced since January 2013. This proposal could leave a vast number of consumers with unaudited and inaccurate escrow accounts.

The company is currently facing numerous substantiated consumer complaints regarding escrow accounts that have been mismanaged, resulting in significant harm to consumers, and request for reimbursement of monies wrongfully withheld or misapplied.

The MOU required Ocwen to provide, among other things, a viable going forward business plan that encompassed an analysis of its financial condition going forward. The purpose of the plan was to analyze Ocwen’s future financial condition incorporating and encompassing all known or reasonably certain liabilities.

Ocwen’s going forward plan submitted in response to the MOU did not provide a complete assessment of its financial condition because it excluded significant liabilities. If the going forward plan accurately accounted for known or anticipated regulatory penalties and other operational costs, including, but not limited to, the expenses of moving to a new servicing platform and complete reconciliation of consumer escrow accounts with restitution to impacted borrowers, it would indicate that Ocwen continuing as a going concern would be in doubt.

The stock is plunging on the news that its business model may be terminally impaired.


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