New York state’s top financial regulator says one of the biggest mortgage servicing companies in America has continued to backdate paperwork in order to justify illegitimate foreclosures, more than two years after the widespread falsification of key foreclosure documents by financial companies was revealed and quickly resolved through a settlement with the federal government.
New York Department of Financial Services Superintendent Ben Lawsky says that Atlanta-based Ocwen Financial Corporation has been sending letters to homeowners long after deadlines for renegotiating their mortgages had passed. The dates on the letters say that they were sent well ahead of the deadlines, but Lawsky’s investigators say Ocwen’s own systems indicate the documents were created after the fact with incorrect dates printed on them. Worse, Ocwen was alerted to the improperly backdated documents by an employee nearly a year ago, according to the Wall Street Journal, but “ignored them for months and still hasn’t corrected them, nearly a year after they were initially found.”
By failing to provide struggling homeowners with timely information about their options, Lawsky’s investigation has found, Ocwen deprived thousands of people the opportunity to renegotiate their mortgages and improve their chances of keeping their homes. The new allegations are “the sixth time in the past two years that Mr. Lawsky’s office had raised questions about Ocwen’s business practices,” the Journal notes. The company’s stock price has fallen by more than half since the start of the year.
The newest alleged violations at Ocwen, which is the fourth-largest mortgage servicing company nationwide, share DNA with the widespread document falsification scandal that was dubbed “robo-signing” when it broke into headlines in 2010. The term refers to an illegitimate business practice whereby financial companies hired people to sign documents without actually verifying any of the information they contained.
Foreclosure laws are scrupulous about documents, and companies that wish to foreclose on a property have to be able to prove that they have legitimate ownership of the loan tied to the property and that they have jumped through a variety of legal hoops in the right order and within the proper timeframe. When the mortgage lending business went wild in the mid-2000s and then blew up during the financial crisis, the industry took shortcuts on hundreds of thousands of those important documents. Later, when firms noticed that it couldn’t prove to a judge that it had the proper paperwork on hand, many simply faked it.
Wells Fargo, the largest mortgage servicer in the country, allegedly had a formal process written down in an employee manual for how workers should go about ginning up missing documents to allow illegitimate foreclosures to proceed. In August, Lawsky’s office intervened to stop Ocwen from purchasing almost $40 billion in mortgages from Wells Fargo.
In early 2012, the Obama administration announced a nationwide blanket settlement of the robo-signing scandal with five banks including Wells Fargo, Bank of America, Citigroup’s mortgage unit, and JP Morgan. The National Mortgage Settlement was touted as a $25 billion deal that would bring relief to millions of wronged borrowers and discourage the industry from continuing the business practice. It has largely proven to be a farce, with banks flouting the terms of the deal repeatedly and Sen. Elizabeth Warren (D-MA) accusing Attorney General Eric Holder of “settling on the cheap” given the multi-trillion-dollar scope of the robo-signing fraud.
The $25 billion figure is itself misleading: just $3.5 billion of that was in the form of direct payments to wronged homeowners, with the rest being counted based on a variety of “consumer relief” actions that ultimately help the bottom line of the banks just as much as they help people stay in their homes. That relief reached far fewer borrowers than it was supposed to.
The settlement failed to produce real transparency about how the mortgage industry does business, too, after the independent foreclosure review system created in the settlement decided that it was more important to protect banks’ “trade secrets” than to give the public a full picture of the abuses. Before it was halted, the review had found a quarter-million wrongful foreclosures and 1.2 million homeowners who had successfully fought off an illegitimate foreclosure.
Holder’s broader record on financial industry enforcement is filled with similar episodes of deference to banks and legal settlements that are oversold in press releases and prove to be weaker than advertised once reality sets in.
Two and a half years after the federal settlement was announced, state regulators are still uncovering systematic falsification of documents by companies that made money foreclosing on borrowers who had their legal rights violated. Lawsky’s letter to Ocwen says that the newly-discovered backdating affected “potentially hundreds of thousands of letters to borrowers” and that the company’s shoddy internal systems mean that “it may be impossible to determine the scope of Ocwen’s non-compliance” with foreclosure laws. It also says that Ocwen’s inappropriate documentary practices have continued into 2014.
The ongoing foreclosure crisis costs the U.S. economy hundreds of billions of dollars in lost wealth each year. More than 8 million children have been affected. As a Consumer Financial Protection Bureau report showed early this year, the mortgage industry has not reformed its abusive practices to any meaningful degree.