Wells Fargo and Ocwen Financial have mutually agreed to cancel the sale of billions of dollars residential mortgage servicing rights after New York's top financial regulator put the deal on hold, according to multiple reports.
San Francisco-based bank Wells Fargo, the nation's top mortgage lender, had agreed to sell $39 billion worth of mortgage servicing rights to Atlanta-based Ocwen, the nation's largest non-bank mortgage servicer, early this year. In February 2014, the transaction was delayed indefinitely by Benjamin Lawsky, head of New York's Department of Financial Services (DFS), citing a conflict of interest between Ocwen and its vendors.
Lawsky and the New York DFS had been investigating Ocwen's servicing activities since late 2012.
"Indeed, the facts our review has uncovered to date cast serious doubts on recent public statements made by the company that Ocwen has a 'strictly arms-length business relationship' with those companies," Lawsky wrote to Ocwen on February 26, 2014. "We are also concerned that this tangled web of conflicts could create incentives that harm borrowers and push homeowners unduly into foreclosure. As such, we are demanding additional information on these issues as part of our review."
Ocwen reported that its $25 million deposit in the deal with Wells Fargo will be refunded.
Ocwen's activities have come under extreme scrutiny from financial regulators in the last year, resulting in millions of dollars in fines and penalties. In December 2013, the Consumer Financial Protection Bureau ordered Ocwen to pay $2 billion in relief to underwater borrowers plus $125 million in refunds to foreclosure victims over a series of alleged servicing errors and illegal servicing activities. Last month, the New York DFS announced that their two-year investigation of Ocwen revealed that the company had sent 7,000 backdated foreclosure notices to borrowers, denying them of loan modifications, after their payment deadline had passed.
"The stakes for borrowers and investors are enormous," Lawsky wrote in a letter to Ocwen dated October 21, 2014, in which he informed the servicer of the findings of the investigation. "If the Department concludes that it cannot trust Ocwen's systems and processes, then it cannot trust Ocwen with complying with the law."
Last week, a group led by a California borrower filed a lawsuit against Ocwen accusing the servicer of illegally marking up default servicing fees.
In October, Ocwen executive chairman William Erbey announced that the company was setting aside $100 million for a potential settlement over the backdated foreclosure notices.