Preparing to sue embattled nonbank
Ocwen Financial (OCN) is about to have another massive battle to fight in what’s becoming an all-out assault on the beleaguered nonbank.
A press release, which does not name investors is available on the website of law firm Gibbs & Bruns.
According to a Bloomberg report, some of the country’s biggest mortgage bond investors, including BlackRock, MetLife, and Pimco, will sue Ocwen, saying that the company failed to properly collect payments on $82 billion of home loans.
The group of investors sent a notice of non-performance to Ocwen and the trustees for 119 residential mortgage-backed securities trusts, stating that a lengthy investigation and analysis by “independent, highly qualified experts” determined that “Ocwen has failed to perform, in material respects, its contractual obligations as servicer and/or master servicer.”
The group of investors identifies several specific ways in which Ocwen failed as a servicer and broke its mortgage bond covenants, including:
- Employing conflicted servicing practices that enriched Ocwen’s corporate affiliates, including Altisource Portfolio Solutions (ASPS) and Home Loan Servicing Solutions (HLSS), to the detriment of the trusts, investors, and borrowers
- Engaging in imprudent and wholly improper loan modification, advancing, and advance recovery practices
- Failure to maintain adequate records, communicate effectively with borrowers, or comply with applicable laws, including consumer protection and foreclosure laws
- Failure to account for and remit accurately to the trusts cash flows from, and amounts realized on, trust-owned mortgages
The group also says that Ocwen “used trust funds to ‘pay’ Ocwen’s required ‘borrower relief’ obligations under a regulatory settlement, through implementation of modifications on trust-owned mortgages that have shifted the costs of the settlement to the trusts and enriched Ocwen unjustly.”
The group also says that their experts’ analysis demonstrate that trusts serviced by Ocwen have performed materially worse than trusts serviced by other servicers, which they allege is a direct result of Ocwen’s “imprudent and improper servicing practices.”
The group also says that they intend take further action to recover these losses and protect the trusts’ assets and mortgages.
The accusation marks the second time in less than 12 hours that Ocwen has been accused of breaching its mortgage bond covenants.
Earlier in the day Friday, Hedge fund BlueMountain Capital Management sent notices of default to Ocwen and Home Loan Servicing Solutions, saying that Ocwen’s regulatory troubles have caused an “irrefutable” default on notes the hedge fund holds in connection with the HLSS Servicer Advance Receivables Trust.
BlueMountatin Capital also stated in a letter addressed to Home Loan Servicing Solutions, Ocwen Loan Servicing, HLSS Servicer Advance Receivables Trust, and Deutsche Bank National Trust Company that Ocwen’s servicing issues caused a default on “certain residential mortgage-backed securities collateralized by loans serviced by Ocwen Loan Servicing” that BlueMountain Capital owns.
“The facts establishing these events of default are irrefutable,” BlueMountain added in the letter. “BlueMountain also has directed the trustees of certain of the RMBS Certificates to investigate and/or take action with respect to Ocwen Loan Servicing.”
In the letter, BlueMountain Capital states that the events of default are the result of “Ocwen's material breach of its covenants to, among other things, comply with applicable laws and requisite servicing obligations; resulting from Ocwen's breach of a warranty in the Senior Secured Term Loan Facility Agreement and a subsequent amendment thereto that it is not in violation of any law that could reasonably be expected to cause, among other things, a material adverse effect on Ocwen's business and financial condition; and resulting from the failure of the Collateral Test, which measures whether the Notes are adequately collateralized.”
Meanwhile, there are some reported developments dealing with Ocwen's troubles in California, where the state is attempting to take them down.
Ocwen Financial is facing serious regulatory pressure from the state of California, which said this week that it was seeking to suspend Ocwen’s mortgage license because the company failed to turn over documentation showing that it complies with the state’s laws. Analysts are questioning if this is the beginning of the end for the troubled nonbank.