Ocwen faulted by watchdog for compliance with servicing settlement

Ocwen Financial Corp's mortgage servicing operations were criticized on Tuesday by a watchdog who questioned the independence of an internal audit group, adding to previous concerns from regulators.

Ocwen is subject to the watchdog's oversight because it had acquired mortgage servicing rights from a unit of Ally Financial Inc. That unit had earlier entered a joint state-federal settlement that required an internal group to vet whether it was meeting standards for dealing with struggling borrowers.

According to the report, an Ocwen employee contacted the monitor of the settlement, Joseph Smith, in May 2014 and called into question the independence of that group, which was required by the deal to be separate from mortgage operations.

Smith said he launched an investigation into the claims, concluded that he could not trust the group's work, and appointed accounting firm McGladrey to retest Ocwen's compliance with the standards.

The group "didn't have the leadership or the wherewithal generally to do the job adequately," Smith said in an interview. "They had some good people but the management wasn't good."

An Ocwen spokeswoman said the company had replaced the management of the review group in October and structured it to report directly to Ocwen's board.

"We will continue to support the monitor's efforts to ensure that we are fully compliant with all aspects of the national mortgage settlement," Ocwen Chief Executive Ronald Faris said in a statement.

Separately, Ocwen in October set aside $100 million for a potential settlement with the New York bank regulator over allegations that it sent backdated letters about loan modifications and foreclosures.

The compliance requirements stem from a landmark $25 billion deal that five banks, including Ally, entered into in 2012. U.S. authorities and states attorneys general appointed Smith to monitor that deal.

The other banks, Bank of America, JPMorgan Chase , Citigroup , and Wells Fargo & Co, passed most of the more than two dozen tests in the first half of 2014, Smith said.

Bank of America had problems with tests that assess the accuracy of pre-foreclosure letters and whether it quickly notifies borrowers of missing documents in the first quarter, but passed all of the tests in the second quarter.

In a statement, the bank said it had worked to ensure that its customers know they are being treated fairly and receive timely and accurate decisions with respect to any relief they seek. 

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