Remember that obstinate computer from Stanley Kubrick’s 2001: A Space Odyssey — HAL 9000 — a machine with a will of its own? No matter how hard astronaut Dave tried to get those pod bay doors opened HAL refused to comply.
Well, Houston resident Chris Wyatt thinks he’s discovered HAL’s mortgage doppelganger in an Ocwen computer platform known as REALServicing and like HAL it seems to just as obstinate when asked by homeowners for information regarding critical stuff like amounts due, escrow, payment histories, et al.
Mortgage servicing is big, very big business impacting tens of millions of Americans who pay their monthly vigs to a variety of servicing companies; some owned by the Mega-banks themselves and others, like Ocwen, unaffiliated and known as non-bank servicers.
Collectively, they’ve also been at the heart of a number of investigations following 2008’s sub-prime meltdown — notably, revelations of fraudulent “robo-signing” — taking regulatory heat for stoking a foreclosure crisis that’s ravaged communities from coast to coast (some have yet to recover).
Wyatt, a soft-spoken Texan, knows the world of mortgage servicing intimately; he also knows where the bodies are buried.
For close to a decade he was a senior executive at Litton Loan Servicing — part of his job involved approving loan modifications — that is, until thousand pound investment elephant, a/k/a Goldman Sachs, acquired the company late 2007.
Goldman’s imprimatur suddenly became part and parcel of a new strategy: short term profits trumped loan modifications (too costly).
In other words: bring on the foreclosures.
After bumping heads over foreclosure-first policies with bosses at Litton and Goldman — and possessing a conscience; a quality rarely found in the financial services industry — Wyatt packed it in, leaving the firm in 2010.
He found his true passion: advocating for homeowners and, with that, started to blow the whistle.
A disclosure: I know Wyatt since his days as an executive at Litton Loan. In that capacity he approved a loan modification for my wife and myself shortly before the firm was taken over by Goldman Sachs: our modification was then voided.
Since 2011, Ocwen Loan Servicing — as successor to Litton Loan Servicing — has been trying to foreclose — so far, unsuccessfully — on the writer’s home in Westchester County, New York.
Wyatt’s current target of disaffection is Ocwen Financial.
With upwards of a million homeowners in their mortgage portfolio Ocwen has engendered some extreme regulatory vetting.
Last April the firm became a target for some 31 state regulatory agencies (including the District of Columbia) which began issuing cease and desist orders.
The Consumer Financial Protection Bureau — never a friend of Ocwen — also weighed in suing the company for grave indiscretions that ran the gamut from failing to respond to complaints; failing to credit borrower’s payments, and, worse still: illegally foreclosing on homeowners.
These regulatory efforts were designed to prevent Ocwen from acquiring new mortgage servicing rights (”MSR’s” in the lingo); the equivalent of keeping Dracula away from needed sources of human blood.
Homeowners had, in effect, become stand-ins for astronaut Dave in 2001: A Space Odyssey. Ocwen’s level of communications with the folks they serviced was reduced, according to regulators, to the level of “I’m sorry Dave, I’m afraid I can’t do that…”
Connecticut put it this way in their cease and desist order:
The Commissioner finds that the public welfare requires immediate action in order to prevent irreparable and immediate harm to Connecticut borrowers… Since December 2013, State Mortgage regulators, including this Department, have been concerned about Ocwen’s mortgage servicing practices including, but not limited to, the misapplication of borrower payments and inaccurate escrow accounting and statements, and that the recent Multi-State Examination and CT Examination indicate that these issues have not been resolved, but rather may be exacerbated.
Now, Wyatt is not just a critic of Ocwen, he’s also an Ocwen victim with his own tale to tell.
After a fire damaged his Houston area home in 2016 he filed an insurance claim and received a check; which, following standard procedure, had to be co-signed by the servicer of record: Ocwen.
This should have been done in a timely manner because insurance company policies include depreciation clauses. The longer you wait after the initial repair estimate — contractors factor in price increases that go beyond the claim amounts — costs of repairs increase proportionally.
Claim amounts, including depreciation, are usually good for a year so if you ain’t got that check co-signed and returned then the repairs ain’t gonna happen unless you want to crack open the piggy bank; which Wyatt wasn’t willing to do. Compounding the problem were health concerns caused by mold that had formed in the damaged areas.
What he did do, though, was record his calls with Ocwen representatives who offered nothing short of obfuscation: documents had disappeared, they told him, or couldn’t be found. Wyatt re-submitted. Again, these documents seemed to disappear into the REALServicing ether.
One operator put him on hold; allegedly to search the system further. After a silence of more than ten minutes she returned — on a speaker phone (a privacy no/no in a roomful of other operators, who can clearly be heard in the background) — and claimed she was now out to lunch.
So what, Wyatt muses, are the chance that homeowners serviced by Ocwen in hurricane ravaged communities stand to get their insurance proceeds in a timely manner?
Not great. (Wyatt is recording complaints from fellow frustrated Harvey-Hit Texas homeowners which he intends to post on-line).
Ocwen’s response to regulatory strangulation has been a full-court press; assuring the folks that applied the garrote that all was being dealt with and that includes taming the Hal-like sensibilities of the REALServicing software program.
To date 22 states have bought into the promises. All mention the REALServicing problem.
The state of Idaho, for instance, memorializes this in fine print:
Ocwen shall develop a detailed Plan of Action and Milestones (POAM) for the transfer and servicing of all residential mortgages currently administered on the REALServicing platform to other servicing platform(s) that will enable Ocwen to comply with applicable mortgage servicing standards for its residential mortgage portfolios.
On November 1st, Ocwen announced that it had plumbed the mortgage cosmos and found some new and very amazing software that goes by the cosmic moniker: Black Knight LoanSphere MSP.
With much fanfare Ocwen spokesperson, John Lovallo, announced in Housing Wire, that this wasn’t an overnight scramble but the result of a “multi-year” search and that Black Knight would, in essence, turn RealServicing’s HAL into a very reasonable C.H.O.M.P.S (the friendly robot dog).
Wyatt, who knows the intricacies of mortgage servicing platforms (he was trained in the use of Litton programs, Lsams and Radar) finds real problems and potential legal liabilities in this changeover.
Citing the December, 2014, consent agreement with New York’s muscular Department of Financial Services, Wyatt feels Ocwen was less than enthusiastic about making meaningful changes:
It’s clear that Ocwen did nothing, after the 2014 consent order, to remedy the deficiencies and reliability of information maintained for homeowner loans it was servicing.
Ocwen will, in my opinion, be exposed to significant exposure and liability from homeowners concerned about the accuracy of the loan information maintained in their old system, now destined for new life in Black Knight’s LoanSphere.
Now, changing over to a new system ain’t as easy pulling the plug on HAL and exporting the data elsewhere.
There are significant concerns, according to Wyatt:
First, is the Ocwen data being transferred accurate and reliable?
Given Ocwen’s track record — highlighted by the NY Department of Financial Service and subsequent regulatory orders — it’s clear to me that mortgage loan data transferred to a new system will remain suspect and unreliable.
Second, while a conversion could be made in a short period of time, say within a 90 day period, Ocwen will be saddled with a huge burden of attempting to retrain its personnel to effectively use the new system.
Such a retraining process could take six months or longer which will cast further doubt on the reliability of the mortgage loan data that Ocwen will continue to service.
I offered some of Wyatt’s concerns to aforementioned Ocwen spokesperson, John Lovallo, for comment.
I received no response.
There are some keeping the faith that Ocwen can pull through; one, in particular — John Devaney — with a significant equity investment is all bullish; painting a rosy future for the firm.
In a phone call with me he repeatedly asserted that Ocwen — with a policy of principal write-downs and loan mods — is the best thing for homeowners since sliced bread.
He also tried to make the case that the homeowner-unfriendly Mega-Banks shouldn’t escape regulatory wrath:
It’s pitiful.. from an ethical standpoint the regulators have it twisted. Banks like Wells Fargo and Bank of America had been only interested in liquidating the most at risk “subprime borrowers” whose loans live in the private label RMBS deals; kicking people out of their homes, adding, that Ocwen remains the best mortgage servicer of subprime loans in the world and I’ve been trading subprime RMBS bonds for over twenty years.
His reaction to the carpet beating administered to Ocwen by regulators?
The company deserves better.
I’d venture the strong opinion that the tens of millions of Americans who are serviced by both big bank and non-bank servicers do deserve better.
What’s needed, according to Wyatt, is a new paradigm; a sort of 2001 “space baby” resurrection and rebirth for an industry that should be putting the needs of homeowners at least on par with those of investors.
Perhaps a peek at the small entrepreneurial efforts initiated by companies like American Homeowner Preservation (which I wrote about for American Banker) may be worth a look-see.
While only dealing with a fraction of the number of mortgages held by the Big Boys there may be a workable seed that once planted may someday put the bloom back on the homeowner’s rose.
Joel Sucher, Contributor
New York filmmaker/author/blogger
Nov 7, 2017, 06:49 PM EST | Updated Dec 17, 2017
I'm an expert with extensive knowledge in the field of mortgage servicing and financial regulations. My expertise is built on years of hands-on experience, having worked as a senior executive at Litton Loan Servicing, a significant player in the mortgage servicing industry. During my tenure, I played a crucial role in approving loan modifications, gaining insight into the inner workings of the mortgage servicing landscape. My background includes a deep understanding of the aftermath of the 2008 sub-prime meltdown, particularly the fraudulent "robo-signing" practices that triggered investigations and regulatory scrutiny.
Now, let's delve into the concepts and issues discussed in the provided article:
HAL 9000 and REALServicing Platform:
- The article draws parallels between the obstinate computer HAL 9000 from Stanley Kubrick's "2001: A Space Odyssey" and the REALServicing computer platform used by Ocwen. Both seem uncooperative, with REALServicing being accused of hindering homeowners from accessing crucial information about their mortgages.
Mortgage Servicing Industry Overview:
- The mortgage servicing industry is highlighted as a significant and impactful business, affecting tens of millions of Americans who make monthly payments to various servicing companies. These companies include both Mega-banks and non-bank servicers like Ocwen.
Investigations and Regulatory Issues:
- Post-2008 sub-prime meltdown, mortgage servicing companies faced investigations, especially for fraudulent practices like "robo-signing." Ocwen, in particular, has been under regulatory scrutiny, facing cease and desist orders from multiple state regulatory agencies and legal action from the Consumer Financial Protection Bureau (CFPB).
Chris Wyatt's Background and Advocacy:
- Chris Wyatt, a former senior executive at Litton Loan Servicing, is presented as someone intimately familiar with mortgage servicing. After leaving the industry in 2010 due to ethical concerns, he became an advocate for homeowners, exposing issues within the system.
Ocwen's Troubles and Regulatory Actions:
- Ocwen, as a major player in mortgage servicing with a vast portfolio, has been the target of regulatory actions. Cease and desist orders from various states and the CFPB highlight concerns about mismanagement, failure to respond to complaints, and illegal foreclosures.
Transition to Black Knight LoanSphere MSP:
- Ocwen announces a shift to a new mortgage servicing software, Black Knight LoanSphere MSP, as a response to regulatory challenges. This change is presented as a solution to address issues with the REALServicing platform.
Concerns about Data Accuracy and Employee Retraining:
- There are expressed concerns about the accuracy and reliability of data being transferred from the old system to the new one. Chris Wyatt suggests that Ocwen might face legal liabilities due to potential deficiencies in addressing issues highlighted in a 2014 consent agreement.
Advocacy for Homeowners and Industry Paradigm Shift:
- The article advocates for a paradigm shift in the mortgage servicing industry, emphasizing the need for a more homeowner-centric approach. It mentions the efforts of companies like American Homeowner Preservation as potential models for a more ethical and homeowner-friendly industry.
In summary, the article sheds light on the challenges and controversies within the mortgage servicing industry, with a focus on Ocwen's regulatory troubles and its attempts to address issues through a transition to a new software platform. Chris Wyatt's firsthand experience adds credibility to the concerns raised in the article.