Although this is an interesting thread and there is more than a little merit in using miscues at Litton / OCWEN to pound these servicers, I would make several observations relating to this discussion.
First, I would point out that an acquisition of another entity is not the same as a merger. As far as I know (though I haven't researched the issue), Litton has not been merged into OCWEN.
Unless entities merge, they remain separate and distinct legal entities.
So unless there is some IRS interest reporting rule unknown to me, it would seem most likely that it would be an incorrect treatment for OCWEN to report interest paid to Litton, UNLESS there had been an actual merger.
But this would certainly not absolve Litton of its reporting responsibilities under the Tax Code. I would think that Litton owes you the additional 1098.
In my view, the entire discussion raises another rather fascinating question and possibly even something that might merit some lobbying and public action. At core, as a servicer, the servicer is merely collecting and passing through the interest to the ultimate mortgage investor.
My analysis above relating to the separate 1098s from two successive servicers, presupposes that it is the servicer which is responsible for reporting the interest rather than the mortgage investor. If it was the mortgage investor which was responsible for 1098 reporting, then one would expect a single 1098 on behalf of the investor, possibly prepared by the servicer acting as agent for the mortgage investor at year end.
Accordingly, it seems to me that consumers probably ought to be lobbying to get the Tax Code changed to REQUIRE that the 1098s identify the mortgage investor to whom the interest is being paid!
Think about it for a minute. YOU get a 1099 on the interest YOU receive as income. IF THE 1098 FAILS TO IDENTIFY THE MORTGAGE INVESTOR RECEIVING THE INTEREST, WHAT IS THE ASSURANCE THAT THE GOVERNMENT IS ACTUALLY BEING INFORMED ABOUT THE AMOUNT OF INTEREST PAID AND RECEIVED?
Of course, the banks can argue that the mortgage trusts are tax exempt entities. While this is true, they are tax exempt ONLY to the extent that the interest income is NOT taxed to the REMIC but rather the mortgage certificate holders are taxed as they receive various interest payments.
Still, SHOULDN'T THE INFORMATION REPORTED TO THE GOVERNMENT ACCURATELY REFLECT THE IDENTITY OF THE ACTUAL MORTGAGE INVESTOR?
I would argue that EVERY 1098 ought to identify not only the servicer, but also the mortgage investor receiving the borrower's payments, both interest and principal. This would do a LOT to overcome some of the transparency problems and this could be easily done on a national basis in the interests of tax compliance!
Returning to the principal theme of the thread, it is also important for borrowers to understand and distinguish that there is a difference between acquisition and merger of a company and acquisition of mortgage servicing rights.
For example, when Option One went out of business, it sold its servicing rights to American Home Mortgage Servicing, Inc. (AHMSI). Option One then changed its name to Sand Canyon Corporation and went into hiding. AHMSI acquired only the servicing rights, NOT the company. Mr. Roper has posted about this before in other threads.
The distinction is important because AHMSI has repeatedly falsely represented in various courts and in respect of various mortgage assignments that it was the successor to Option One. THIS IS UNTRUE. Sand Canyon continued to exist and was the SAME corporate entity as Option One. There was no successor company as the term successor would be ordinarily understood in business.
But one can well imagine that this kind of sale of servicing rights presents much the same problem and probably EXACTLY the same problem as the OCWEN - Litton acquisition, because I would BET MONEY that OCWEN would have NEVER merged Litton into its enterprise.
Merging Litton exposes OCWEN to any and all liabilities of Litton. By contrast, purchasing the company, keeping it a separate entity and then also separately transferring the servicing rights achieves the same ultimate objective while orphaning all of the liability for Litton's fraud in the now exhausted and barren Litton corporate shell!
So my GUESS is that it was only the servicing rights that were actually transferred directly into OCWEN. This would seem to leave the responsibility for IRS 1098 reporting of prior borrower interest payments on Litton, not OCWEN, same as for AHMSI.
Finally, I would point out that while irregularities in 1098 issuance probably ought to be a subject which merits much gnashing of teeth, it actually shouldn't have any great effect on most borrowers or their actual tax liability.
The 1098 affords a means of computerized matching and verification of taxpayer assertions about interest payments with Lender reporting about interest actually collected. But unless there is some change to the tax code of which I am unaware, taxpayers are probably entitled to deduct the interest actually PAID during a tax year whether they receive a 1098 or NOT.
If the taxpayer reports an amount for which there is no corresponding report on a 1098, this could result in an audit of the borrower. But as long as the borrower can PROVE the amounts actually PAID and the nature of the payments, even if audited, I doubt that failure to have a valid 1098 would result in any denial of the asserted interest deduction.
The probability of getting audited is also exceptionally LOW, well under 1% for most taxpayers.
Actual audit selection is based upon a so-called discriminate function. The IRS has determined statistically mean and median values of various reported income and expense measures based upon various other tax return factors, together with standard deviations. That is, for a taxpayer with a certain adjusted gross income, there is an amount of expected interest expense (e.g. it would be hard to afford $30,000 interest a year on $25,000 in income, etc.).
Discriminate scores are assigned to taxpayers based upon observed return attributes based upon variance from expected values, with the score increasing exponentially as the value falls more than two or three standard deviations from the norm.
For example, suppose that the mean charitable contribution for Church donations was $457 for an itemizing married couple with an adjusted gross income of $65,000, with a standard deviation of $255. If you and your wife had a comparable AGI of $65,000, itemized and took a deduction of $450, you would almost NEVER be audited, at least as to this item. That is to say that your chance of being audited wouldn't just be below 1%. It would probably be more like 0.001%. In fact, you would probably ONLY ever be audited in respect of such an expense if you were randomly selected for a total audit as part of a statistical exploratory tax compliance program to study overall levels of fraud (rather than to recover tax underpayment based upon suspected non-compliance).
By contrast, if you claimed $1,000 in Church contributions, which would be over 2 standard deviations higher ($457 + 2 x $255 = $967), your chance of being audited on this item would be much higher. It might even be 2% to 10% (I am INVENTING these illustrative figures). If you claimed even higher amounts, maybe in the $3,000 to $5,000 range, you might be sufficiently outside of any normal distribution that your chance of being audited would increase to close to 100%.
(Again, I want to emphasize that the discussion above is accurate ONLY as to the use of probabilities and discriminate function scoring to the likelihood of being selected. ALL of the values and probabilities are INVENTED for the illustration.)
When a taxpayer is audited over a particular item and found to be in compliance, then this is taken into accounts in future scoring. By contrast, when a taxpayer is audited and found to have made errors or taken unsupported deductions, an audit can be expanded.
My overall point is that while a 1098 matching failure could certainly be the source of an audit, most audits are driven by anomalous deductions which are out of range with income, other return aggregates, prior reports for that item or all of these.
If you had a certain level of income and expenses reported in prior years and when filing this year, your income and reported expenses are both in line with past returns, as well as well within the norm, then your likelihood of being selected for an audit is really remote, probably under 0.01%. The IRS keeps the precise nature of its scoring a closely guarded secret, because they do not want taxpayers gaming their returns based upon likelihood of getting caught. But the IRS' bark is far worse than its bite when it comes to rather routine reporting of routine income and expenses.
In short, if your reported interest expense is likely to be exceptional in some way that would call attention to your return, it would be far better to have a 1098 upon which to justify your claims. And having a 1098 can be especially helpful for those who are poor at record keeping, who are paying from a coupon book and aren't getting monthly payment statements or have difficulty calculating interest from their payments.
But those with monthly statements and canceled checks from their banks whose interest expense is typical of taxpayers of comparable means have little to worry about. They are UNLIKELY to be audited and could fully justify their deduction IF audited.
Go beat Litton and OCWEN up over this, but do not let it keep you awake at night!