The biggest news in 2013 relating to fraud by mortgage servicers came at the very end of the year when the Consumer Financial Protection Bureau, together with attorneys general and state banking regulators in 49 states announced a $2.125 billion settlement with Ocwen Financial Corporation and Ocwen Loan Servicing, the largest nonbank mortgage loan servicer in the country. The settlement also included two very large servicers recently purchased by Ocwen, American Home Mortgage Servicing, Inc. (“AHMSI), most recently known as Homeward Residential Holdings, LLC, and Litton Loan Servicing, LP (“Litton”).
Most of the settlement, $2 billion, was earmarked for principal reductions for underwater borrowers. According to the press release on the National Mortgage Settlement website, “Ocwen must also refund $125 million to the nearly 185,000 Ocwen, Litton and Homeward borrowers who have already been foreclosed upon…” The problem with this statement is that the number of former homeowners wrongfully foreclosed upon with the assistance of these three servicers far exceeds 185,000.
Only a relatively small number of foreclosures were brought with Ocwen, Litton or AHMSI as the named plaintiff in the court cases. That number may be close to the 185,000 stated in the press release. In tens of thousands of other cases, the named plaintiff was a bank/trustee acting on behalf of a residential mortgage-backed trust. In those cases, the critical loan documents needed to “prove” the banks’ cases came from Ocwen, Litton and AHMSI. That plain truth is not only ignored by the settlement, but the press release certainly would make a reader wrongly conclude that the damage done by these servicers was far less than the actual damage inflicted on homeowners, neighborhoods and the national economy.
The document mills operated by Ocwen, Litton and AHMSI produced the phony documents that the trusts used to foreclose. Ocwen provided fraudulent assignments and/or note endorsements to approximately 200 trusts, Litton provided such assignments to approximately 50 trusts. AHMSI, and its business partners Lender Processing Services and DocX, provided such assignments to at least 500 trusts, including most of the trusts comprised primarily of loans made by Option One Mortgage Corporation or American Home Mortgage, and its subsidiaries, American Brokers Conduit and American Home Mortgage Acceptance, some of the nation’s largest subprime lenders in 2005 and 2006, the peak residential mortgage-backed trust years.
Assume these 750 trusts had an average of 5,000 loans per trust, or 3.75 million mortgages combined. Assume a default rate of 50%. Then approximately 1.875 million homeowners in foreclosure were beaten out of their legal defenses with phony documents – not the 185,000 number used in the settlement. Who decided the adequacy of this relief?
The checks may be more, especially if Rust Consulting handles the distribution. Rust will not be able to find many of the intended recipients. Other intended recipients will not bother to take the Rust Consulting check to the bank, fearing the fee for a possible NSF check will outweigh the amount of the relief. Even at $1,200 per household, as predicted, the compensation for a lost foreclosure case that was prosecuted using fraudulent documents seems grossly inadequate.
OCWEN NOT REQUIRED TO ADMIT WRONG-DOING
As with many settlements, Ocwen was not required to admit to any wrong-doing under this settlement.
NO CONCURRENT CRIMINAL PROSECUTIONS
No one from Ocwen, or AHMSI or Litton was arrested. Scott Anderson, a vice-president of Ocwen, who signed tens of thousands of mortgage assignments to trusts with false information about when the trusts acquired certain mortgages, and who also signed thousands of fraudulent note endorsements/allonges, was not charged with any crime. No one who worked with Scott Anderson at Ocwen who signed his name on mortgage documents that were then “witnessed” and illegally notarized, was charged with any crime.
No one from Litton was charged with any crime. The notorious Litton robo-signers, Denise Bailey, Diane Dixon and Marti Noriega, were not charged with any crime, including any charges relating to signing thousands of mortgage assignments specially made to use in foreclosures and bankruptcies, all with false information about the date trusts acquired mortgages. No one from Goldman Sachs, the company that owned Litton until 2011 when it was sold to Ocwen for $263.7 million, was charged. Bailey, Dixon and Noriega most often executed documents showing transfers to trusts that had been put together by Goldman Sachs. While the genral rule in white collar cases is to follow the money, this rule was not applied where the money trail led to Goldman Sachs.
No one from American Home Mortgage Servicing was charged with any crime. The prolific signers from the Jacksonville office of AHMSI, including Elizabeth Boulton, Alisa Dhimitri, Theresa Esposito, Andrew Fuerstenberger, Michelle Halyard, Michael Hunt, Joseph Kaminski, Silena Rivera, Kathy Smith, Cynthia Stevens and Carolyn White were not charged and may continue business as usual.
No one from American Home Mortgage Servicing was charged with any crime for signing mortgage assignments purporting to transfer mortgages to trusts long after such trusts had closed, and on dates when such transfers never occurred.
No one from American Home Mortgage Servicing was charged with signing as officers of Sand Canyon Corporation to transfer mortgages from Sand Canyon years after Dale Sugimoto, the president of Sand Canyon, submitted a declaration (signed on March 18, 2009) stating that Sand Canyon no longer owned any residential mortgages.
No one was charged with signing mortgage documents that represented that AHMSI owned certain mortgages when, in fact, AHMSI only acted as servicer for such mortgages.
None of the three servicers was charged with any crime for pursuing foreclosure litigation in the name of a bank or trust when they had actual knowledge that a different bank or trust actually owned the note and mortgage.
THE CFPB ALLEGATIONS
The complaint, filed in federal district court in D.C., alleges that Ocwen charged borrowers more than stipulated in the mortgage contract; forced homeowners to buy unnecessary insurance policies; charged borrowers unauthorized fees; lied in response to borrower complaints about excessive and unauthorized fees; lied about loan modification services when borrowers requested them; misplaced documents and ignored loan modification applications, causing homeowners to slip into foreclosure; illegally denied eligible borrowers a loan modification, then lied about the reasons why; and engaged in illegal foreclosure practices, including using robo-signed documents.
TAXES ON DEBT FORGIVENESS
The Mortgage Forgiveness Debt Relief Act is set to expire December 31, and after that, any principal reduction will be treated as earned income for the homeowner. A homeowner may escape a debt to a bank or mortgage company through a bankruptcy proceeding, but the new IRS debts created by principal reductions cannot be wiped out.
The new settlement achieved more promises by Ocwen, a company with a long history of broken promises, with very little relief to homeowners who have managed to stay in their homes, and no meaningful compensation for homeowners who have already lost their homes. Perhaps the biggest failure is that the banks and servicers do not need to withdraw any wrongfully filed document with any Recorder of Deeds anywhere in the country, nor notify a single foreclosure court that filed documents are fraudulent. For banks and servicers, the settlement was yet one more gift from the nation’s financial watchdogs.