Major mortgage bond investors including BlackRock, MetLife and Pimco on Friday took a first step toward suing Ocwen Financial Corp , accusing it of having failed to properly collect payments on $82 billion of home loans, according to a person familiar with the matter and to documents seen by Reuters.
The group sent a formal notice of non-performance to Ocwen and trustees for 119 residential mortgage-backed securities trusts, alleging improper loan modification practices, wrongfully recouped advances, and a failure to account for cash flows. The notice said that Ocwen also steered work to affiliates such as Altisource Portfolio Solutions and Home Loan Servicing Solutions for allegedly unnecessary or overpriced mortgage servicing to the detriment of the trusts, investors and borrowers.
The investors said the trusts had losses of more than $1 billion because of Ocwen's failings. Margaret Popper, a spokeswoman for Ocwen, had no immediate comment. The case is the latest setback for Ocwen, which was recently threatened with the loss of its license in California, and whose stock has fallen 89 percent from its record high in October 2013 amid state and federal probes into its business practices.
Ocwen settled the California case on Friday after agreeing to pay $2.5 million in penalties, according to Tom Dressler, a spokesman for the California Department of Business Oversight. He said Ocwen would be barred from accepting new customers in California until the mortgage servicing company complies with certain requests for information.
Also, earlier on Friday, BlueMountain Capital Management said it delivered a notice of default in securities issued by Ocwen affiliate Home Loan Servicing Solutions. The hedge fund also said it was shorting stock of Ocwen and the affiliate. And last month, Ocwen agreed to replace its chairman and pay $150 million to New York, which accused it of backdating letters about loan modifications for struggling borrowers, and funneling work to affiliates that may have led to improper foreclosures.
In the bond investor case, investors are also seeking more than $153 million that they say Ocwen improperly recovered from the mortgage bond trusts. Ocwen should not have recouped the funds, known as "advances," when the loans were modified, the investors say. They also want over $78 million after Ocwen forgave principal as part of a settlement with the Consumer Financial Protection Bureau in December 2013. The investors allege it was improper for Ocwen to modify loans in the trusts to claim credit under the settlement.
"The notice issued today raises serious concerns about the quality and accuracy of Ocwen's servicing of mortgages held by these trusts," said Kathy Patrick, a partner at the Houston-based law firm Gibbs & Bruns, which initiated the legal action on behalf of the group of investors. "Ocwen must now address these concerns promptly," she added.
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