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 The group sent a formal notice of non-performance to Ocwen and
trustees for 119 residential mortgage-backed securities trusts,
alleging improper loan modification practices, wrongfully recouped
advances, and a failure to account for cash flows.
The notice said that Ocwen also steered work to affiliates such as
Altisource Portfolio Solutions <ASPS.O> and Home Loan Servicing
Solutions <HLSS.O> for allegedly unnecessary or overpriced mortgage
servicing to the detriment of the trusts, investors and borrowers.
The investors said the trusts had losses of more than $1 billion
because of Ocwen's failings.
Margaret Popper, a spokeswoman for Ocwen, had no immediate comment.
The case is the latest setback for Ocwen, which was recently
threatened with the loss of its license in California, and whose
stock has fallen 89 percent from its record high in October 2013
amid state and federal probes into its business practices.
Ocwen settled the California case on Friday after agreeing to pay
$2.5 million in penalties, according to Tom Dressler, a spokesman
for the California Department of Business Oversight. He said Ocwen
would be barred from accepting new customers in California until the
mortgage servicing company complies with certain requests for
information.
Also, earlier on Friday, BlueMountain Capital Management said it
delivered a notice of default in securities issued by Ocwen
affiliate Home Loan Servicing Solutions. The hedge fund also said it
was shorting stock of Ocwen and the affiliate.
And last month, Ocwen agreed to replace its chairman and pay $150
million to New York, which accused it of backdating letters about
loan modifications for struggling borrowers, and funneling work to
affiliates that may have led to improper foreclosures.
In the bond investor case, investors are also seeking more than $153
million that they say Ocwen improperly recovered from the mortgage
bond trusts. Ocwen should not have recouped the funds, known as
"advances," when the loans were modified, the investors say.
They also want over $78 million after Ocwen forgave principal as
part of a settlement with the Consumer Financial Protection Bureau
in December 2013. The investors allege it was improper for Ocwen to
modify loans in the trusts to claim credit under the settlement.
"The notice issued today raises serious concerns about the quality
and accuracy of Ocwen's servicing of mortgages held by these
trusts," said Kathy Patrick, a partner at the Houston-based law firm
Gibbs & Bruns, which initiated the legal action on behalf of the
group of investors.
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"Ocwen must now address these concerns promptly," she added.
Under the mortgage bond trusts' contracts, Ocwen has 60 days to fix
the practices that the investors are complaining about. After that,
the investors can demand that the six trustees sue Ocwen or seek
other relief.
The trustees include Bank of New York Mellon Corp <BK.N>, Citibank
<C.N>, Wells Fargo & Co <WFC.N>, HSBC <HSBA.L>, Deutsche Bank
<DBKGn.DE> and U.S. Bank <USB.N>. Spokespeople for Wells, HSBC,
Citi, and USB declined comment. BNY Mellon and Deutsche Bank did not
immediately respond.
Gibbs & Bruns also represents investors in a $8.5 billion settlement
with Bank of America Corp <BAC.N> and a $4 billion-plus proposed
deal with JPMorgan Chase & Co <JPM.N> over mortgage-backed
securities.
Aside from money manager BlackRock Inc, insurer MetLife Inc and fund
manager Pimco, owned by Germany's Allianz, the investor group taking
the action on Friday also includes European investment fund Sealink
Funding Ltd and investment management firm Kore Capital, the person
familiar with the matter said.
BlackRock declined comment as did a representative for Sealink.
Calls to Pimco and other members of the investment group were not
immediately returned.
The notice referenced problems raised by New York's Department of
Financial Services, the U.S. Consumer Financial Protection Bureau,
and a nearly year-long investigation by the investor group with the
help of outside experts.
The notice also alleges that trusts serviced by Ocwen do a lot worse
than others, and returned about 1 percent less in cash to investors
annually from 2009 through 2013.
Shares of Ocwen fell nearly 17 percent on Friday and Home Loan
Servicing Solutions fell more than 10 percent.
(Additional reporting by Peter Rudegeair; Editing by Christian
Plumb)
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