Feds sue ex-Atlanta mortgage servicer

Allegations of mishandled accounts called unfounded.

Ocwen Financial Corp., one of the nation’s largest processors of consumer mortgage payments, has been rocked by fresh allegations it mishandled accounts and in some cases illegally foreclosed on homeowners.

Ocwen shares lost more than half their value after state and federal authorities alleged widespread failures at the company and blocked it from acquiring new business. State regulators said fixing the company’s problems could put it under. Ocwen said the U.S.’s complaints were unfounded and that it did not cause substantial harm to consumers.

The former Atlanta company was once a Wall Street darling, making its former chairman Bill Erbey a billionaire.

But between 2011 and 2016, the U.S. Securities and Exchange Commission and other federal and state agencies accused Ocwen of wrong-doing ranging from misleading accounting to deceiving and over-charging mortgage borrowers.

The latest accusations put a new cloud over the future of Ocwen, now based in West Palm Beach, Fla. The firm played a key role in helping banks get rid of their exposure to subprime home loans after the 2008 financial crisis. From 2009 through the end of 2013, the number of loans the company was collecting on jumped eight-fold, as it mopped up business that big banks were eager to get rid of.

Ocwen and other companies bought the rights to service distressed mortgages, and said they were focusing on improving loan terms for borrowers so consumers could stay in their homes. The companies have since been plagued by accusations they neglected to make necessary investments to properly handle their new business.

On Thursday the U.S. Consumer Financial Protection Bureau said in a lawsuit that Ocwen botched basic functions like sending accurate monthly statements, crediting payments and handling taxes and insurance from escrow accounts. Florida’s attorney general filed a similar suit.

The failures resulted in harm to consumers, including illegal foreclosures and bogus fees, the CFPB said. The company has received error notices and complaints from more than 300,000 borrowers since April 2015, the CFPB said. As of December, it collected payments on around 1.4 million mortgages.

“Ocwen has consistently failed to correct deficient business practices that cause harm to borrowers,” said Ray Grace, North Carolina’s commissioner of banks, in a press release on Thursday. “We cannot allow this to continue.”

The company said in a statement that it believes its mortgage servicing practices have resulted in “substantial benefits” to consumers, and that it has hired more than 350 people in its risk, audit and compliance areas since 2013. It said many issues the CFPB raised were already addressed by a 2013 settlement it signed, and that only a small portion of its customers were harmed.