After a long and drawn-out battle with the state of California, Ocwen Financial Corporation has finally reached a settlement with California’s Department of Business Oversight (DBO). Ocwen agreed to pay nearly $25 million to the state as well as providing nearly $200 million in debt forgiveness through loan modifications made to California borrowers. Those modifications must happen over the next three years, and in exchange California will stop using an independent auditor to monitor Ocwen’s activity in the state. Ocwen did not have to admit fault as part of the settlement.
In January 2015, California’s DBO accused Ocwen of improperly billing and collecting on mortgages and also refused to provide requested information to the DBO when it was requested. The department threatened to suspend Ocwen’s license to operate in the state, despite the company’s status as one of the largest mortgage servicing and foreclosure prevention companies in the United States.
The Settlement
The settlement comes five months after Ocwen Financial sued the independent monitor selected by the DBO for “gross dereliction of duty” in its responsibility to both Ocwen and California. The mortgage servicer alleged that the monitor charged the company for employee services while employees watched videos and took other breaks, in addition to other more scurrilous claims about reimbursement requests for casino and nightclub attendance.
Real estate investors with properties in California could benefit from the roughly $200 million in mandatory loan modifications that Ocwen now must make in the state, but for the most part will likely be unaffected by the settlement. However, the settlement is just one more in a long line of settlements between states and mortgage servicers in the wake of the housing crash, and likely California’s success in eventually forcing such a settlement could cause more states to attempt additional litigation as well. Furthermore, such settlements have the potential to make national lenders less likely to ease lending requirements or streamline the lending process, which could make community banks a more appealing option for both investors and homeowners.
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