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Freddie Mac’s recent choice of Ocwen Financial Corporation to participate in a pilot program aimed at streamlining high risk loan modifications is an interesting one, to say the least.
- In 2004, Ocwen Financial Corporation sought voluntary dissolution of Ocwen Federal Bank. According to Ocwen’s FORM 10-K filings for the fiscal year ended December 31, 2004, the bank filed for voluntary dissolution of OFB with the The Office of Thrift Supervision (OTS) on November 24, 2004. (The OTS acts as the primary regulator of all federal and many state-chartered thrift institutions, including savings banks and savings and loan associations.)
- A jury in Galveston, Texas, in November 2005, awarded $11.5 million to a customer of Ocwen Financial Corp and its former Ocwen Federal Bank subsidiary, after determining the two companies committed fraud in servicing the customer’s home equity loan.
- The verdict against Ocwen Federal was issued in Texas’s 212th District Court. The jury ordered the Ocwen companies to pay Sealy Davis $10 million in actual damages and about $1.5 million for mental anguish and economic damages, reported the South Florida Business Journal.
- This came after Ocwen Federal Bank signed a written agreement in April 2004 with OTS agreeing to improve its compliance with the Real Estate Settlement Procedures Act (RESPA), the Fair Debt Collection Practices Act, and the Fair Credit Reporting Act.
- Again, according to Ocwen’s FORM 10-K filings for the fiscal year ended December 31, 2004, the company reported that “if this process, which we refer to as “debanking,” is completed, we would dissolve the Bank and continue its non-depository businesses, including its mortgage servicing business, under another subsidiary of our Company, which would be licensed where necessary at the state or territory level.”
Fast forward to February 2009 and Ocwen is once again making headlines in the loan servicing industry. Freddie Mac must be satisfied that Ocwen has changed its ways because it just selected Ocwen to test a new pilot program to streamline loan modifications for distressed homeowners.
Under the new pilot, a selected portfolio of higher risk mortgages that are at least 60 days delinquent will be given to a specialty servicer–Ocwen Financial Corporation–for intensive attention using the full range of Freddie Mac workout opportunities, including the Streamlined Modification Program developed with the Federal Housing Finance Agency, Fannie Mae and the HOPE Now Alliance.
Posted on Freddie Macs site was this statement by Ocwen Chairman and CEO, William Erbey:
“We applaud Freddie Mac’s leadership in foreclosure prevention and are delighted to support this innovative initiative. We bring the technology and processes that now achieve successful workouts in the overwhelming majority of delinquent loans in our servicing portfolio. Our goal is and will continue to be to engineer workouts that keep homeowners in their homes and return greater cash flow to the loan owner than the proceeds from a foreclosure – a win/win situation for American homeowners and taxpayers alike.”
Understanding that there are only a limited number of companies large enough to handle the volume of loan modification business Freddie Mac has, it still leaves you wondering whether Freddie Mac made the best choice by picking Ocwen.