Ocwen facing litigation wave

Ocwen Facing Litigation Wave

Jim Freer
Published: January 23, 2006
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   Ocwen Financial, one of the nation's largest servicers of mortgages to
   consumers with low credit scores, may appeal a $1.8 million judgment in
   Texas as it strives to deal with hundreds of cases alleging fraud.

   Plaintiff lawyers are currently seeking class action status for 57
   federal cases being consolidated in Chicago and the West Palm Beach
   company says it is facing 331 lawsuits altogether. Ocwen (NYSE: OCN)
   previously wound down its savings and loan subsidiary after an
   enforcement action by the Office of Thrift Supervision.

   The allegations are sometimes harsh - one plaintiff describes the
   company's actions as "naked fraud" - but Ocwen general counsel Paul
   Koches said the lawsuits are partly due to the fact that subprime loans
   have a higher incidence of late payments. The sheer volume of Ocwen's
   business also is a factor: It services about 368,000 loans, mostly
   subprime.

Jury: Award $11.5 million

   Among past customers is Sealy Davis, a home equity loan borrower, who
   won her fraud claim in Texas. A jury on Nov. 29 said she should get
   $11.5 million. On Jan. 17, Judge Susan Criss, of Texas' 212th Judicial
   District, said she was preparing to sign an order cutting that to $1.8
   million.

   Davis' attorney, Robert Hilliard of Corpus Christi, said: "The jury
   believed that Ocwen has a scheme of stealing homes" by classifying
   timely payments as late and then beginning a foreclosure proceeding.

   "We think the evidence supported the $11.5 million verdict," he said. He
   proposed the lower figure based on what he determined to be Texas
   precedents on juries' multiple damage assessments.

   Attorneys for Ocwen asked that the verdict be reversed or that no
   penalty should be assessed.

   In its appeal, Ocwen plans to keep pressing that Davis was in "severe
   delinquency," Koches said.

   But Ocwen probably isn't done with Hilliard. The attorney said he is
   preparing to file about 100 suits for Texas residents who claim Ocwen
   falsified mortgage payments and began foreclosure proceedings.

   An exact number of suits that customers have filed against Ocwen and its
   former Ocwen Federal Bank subsidiary was not readily available.

   The Business Journal's review of court filings shows Ocwen and
   affiliates are defendants in more than 500 civil suits filed in federal
   courts since 2002. Many of the cases have more than one customer among
   plaintiffs. About 100 of the cases are still pending.

   "Annually, we resolve 75 to 80 percent of severe delinquencies before
   they go to foreclosure, by modifying the loan or granting other
   forbearance," Koches said.

   Ocwen and its outside law firms are reviewing the Galveston court's $1.8
   million judgment to determine their next possible step, he said.
   Possibilities include asking the district court to reduce the amount or
   set it aside, or file an appeal with a state court of appeals in
   Houston.

   In 2004, Ocwen asked the U.S. Judicial Panel on Multi-District
   Litigation to begin consolidating a number of federal cases filed
   against it and its affiliates. Ocwen's records show that 57 active cases
   have been consolidated in U.S. District Court in Chicago.

Attorney is plaintiff

   Kweku Hanson, a Hartford, Conn., attorney, is among Ocwen customers
   whose suits are part of that consolidation.

   Hanson said he bought a home in Hartford in August 1997, with a $75,000
   loan from Ocwen Federal Bank, which also serviced the loan. Hanson said
   he began making payments ahead of schedule, and has cancelled checks
   from his bank.

   Within one month, he said, Ocwen began sending him notices that payments
   were late and two months later he was contacted by a foreclosure
   specialist from the company.

   After challenging that foreclosure action in a state court, Hanson filed
   his federal suit seeking damages in 2002.

   "In the cases that have consolidated and in hundreds of other cases,
   Ocwen has committed naked fraud like this," Hanson said.

   Koches did not return calls regarding Hanson's case.

Thrift dissolved

   Customer complaints about loan servicing at Ocwen Federal, which was
   based in Fort Lee, N.J., resulted in the U.S. Office of Thrift
   Supervision's April 2004 enforcement action against the bank.

   Ocwen Federal signed a written agreement with the OTS, in which it
   agreed to improve its compliance with the Real Estate Settlement
   Procedures Act, the Fair Debt Collection Practices Act and the Fair
   Credit Reporting Act.

   In June 2005, the OTS approved Ocwen Financial's request for "voluntary
   dissolution" of Ocwen Federal.

   In that arrangement, Ocwen Financial sold the bank's Fort Lee office to
   Marathon National Bank of Astoria, N.Y., and transferred its assets and
   liabilities to several other banks.

   Amid the lawsuits, Ocwen's stock price fell 9 percent during 2005, from
   $9.56 to $8.70. The stock rebounded to a $9.39 close on Jan. 17. Ocwen
   has not yet reported full-year 2005 results.

   The company reported net income of $13.2 million, or 21 cents a share,
   for 2005's first three quarters. That compared with net income of $55.2
   million, or 78 cents a share, for 2004's first three quarters.

   Ocwen's 2004 results include income tax benefits of $31.8 million, and
   its 2005 results included income tax provisions of $5.1 million.

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