One settlement and one enforcement action have been announced in the last 24 hours and they are going to cost two financial institutions a lot of money.  The enforcement action, announced Thursday by Consumer Financial Protection Bureau (CFPB) Director Richard Cordray, was brought by authorities in 49 states and the District of Columbia as well as CFPB against Ocwen Financial Corporation and its subsidiary Ocwen Loan Servicing.  The settlement announced Friday is between the Federal Housing Finance Agency (FHFA) and Deutchbank AG related companies.

The court order against Ocwen which was filed in federal district court and agreed to by the company, demands that it refund $125 million to compensate people who have already lost their homes through what Cordray called "years of systematic and significant servicing errors."  The court filing also demands that Ocwen provide $2 billion in relief to current homeowners who are underwater and in danger of losing their homes. 

In prepared remarks for a press briefing about the Ocwen action, Cordray said the servicer specializes in subprime or delinquent loans and it has been greatly expanding its business in the years since the housing collapse.  It is now the largest nonbank servicer and the fourth-largest mortgage servicer overall in the country.  Not only has it acquired smaller competitors, it has taken on servicing duties for the some of the big banks and now has customers in the millions.

The Director said that, for many borrowers, Ocwen was not their first servicer but that CFPB believes that too often trouble began as soon as a loan was transferred to Ocwen and the company failed to honor trial modifications that were agreed upon by previous servicers.  He said he believes that Ocwen violated federal consumer financial laws at every stage of the mortgage servicing process.  The complaint alleges the company took advantage of consumers with servicing shortcuts and unauthorized fees, misled consumers about alternatives to foreclosures, provided false or misleading information to consumers about the status of their accounts and denied loan modifications for eligible homeowners.  It also sent robo-signed foreclosure documents through the courts.

The $125 million in monetary compensation will go to consumers who lost their home to foreclosure while being serviced between 2009 and 2012 by Ocwen or by Homeward Residential Holdings and Litton Loan Servicing which Ocwen acquired.  In addition Ocwen must complete sustainable loan modifications over the next three years that result in a reduction in principal totaling $2 billion for homeowners who are underwater and struggling to pay off their mortgages. 

Cordray pointed out that in less than a month, the Bureau's new mortgage servicing rules will take effect and Ocwen, like other servicers, will be subject to the new standards which, in many ways overlap the enforcement action.  However, because of its conduct, Ocwen will be subject to standards and scrutiny above and beyond the rest of the industry.