Published: January 23, 2006
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
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
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
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.
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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