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HomeFT SelectShares in US mortgage servicing group Ocwen tumble

Shares in US mortgage servicing group Ocwen tumble

US mortgage group Ocwen has lost more than half its market value after the Consumer Financial Protection Bureau sued it over “systemic” misconduct, a reminder of the power wielded by the Washington regulator that Republicans have vowed to rein in.

Several states are also taking action as they prepare to revoke operating licenses for the New York-listed company, which was founded in 1988 and employs more than 9,000 people. Wilbur Ross, commerce secretary, sat on the board for almost two years.

Shares in Ocwen, which collects payments on about 1.4m home loans, plunged 54 per cent as watchdogs warned its financial condition was “deficient” and that dealing with the problems could fatally undermine its balance sheet.

In a lawsuit, the CFPB claimed Ocwen had subjected consumers to “years of widespread errors, shortcuts and runarounds” — from failing to credit borrower payments to botching escrow accounts. Ocwen wrongfully initiated foreclosure proceedings on at least 1,000 people, it alleged.

Ocwen, however, said the CFPB’s “politically-motivated”claims were “inaccurate and unfounded”.

“This unreasonable action is an unfortunate example of overreaching by the CFPB,” it said.

“Ocwen believes its mortgage loan servicing practices have and continue to result in substantial benefits to consumers above and beyond other mortgage servicers.”

It added: “We have just received various orders from state mortgage regulators, and are in the process of reviewing them in detail. We will respond promptly to all of the matters raised after a full review.”

Backers of the CFPB seized on the action as evidence of why the federal regulator, which was set up after the last financial crisis, was needed to protect consumers.

“This is yet another example of why working families need a strong and independent CFPB,” said Sherrod Brown, Democratic ranking member of the senate banking committee.

The developments mark a remarkable fall from grace for the former investor favourite. The sell-off valued Ocwen shares, which were worth as much as $8.1bn in 2013, at less than $310m at the close on Thursday.

Mortgage regulators in more than 20 states have issued regulatory enforcement orders against the Florida company, which is run by Ronald Faris, president and chief executive.

In a “cease and desist” order, the state of North Carolina said that the company had already told regulators that making good customer escrow accounts would cost it $1.5bn — “well beyond Ocwen’s financial capacity to fund”.

“Ocwen has consistently failed to correct deficient business practices that cause harm to borrowers,” said Ray Grace, North Carolina’s commissioner of Banks. “We cannot allow this to continue.”

The action puts the regulatory spotlight back on mortgage servicing groups, which as well as taking payments from borrowers and dealing with administration, also pursue foreclosures.

Banks ran into regulatory trouble in the wake of the financial crisis for mishandling mortgage servicing, including over “robosigning” — mechanical processing of foreclosures, sometimes without adequate documentation.

“Consumers are stuck with their mortgage servicer, regardless of how they are treated,” said Richard Cordray, director of the CFPB. “By bringing this lawsuit, we are seeking to enforce the law and make sure all mortgage servicers recognise that they must treat consumers fairly and with the respect and dignity they deserve.”

It is the latest action against Ocwen. Regulators said they ordered it more than three years ago to fix mortgage servicing violations. The CFPB is now asking the court to order Ocwen to grant consumers monetary relief and impose penalties.

At the close of trade in New York on Thursday, the shares had lost $2.91 to trade at $2.49.

Mr Ross was a director between March 2013 and November 2014, according to Bloomberg records.

Via FT