Ocwen Financial Corporation is a residential and commercial loan-servicing company headquartered in Atlanta, Georgia. As a loan-servicing company, Ocwen purchases the rights to manage loans through banks such as Wells Fargo and subsequently manages the interest and principal payments. It is currently the largest nonbank servicer of mortgages in the United States.
Ocwen has recently been under scrutiny. According to the article “Ocwen Accused Anew Of Improper Practices” by James Sterngold, Ocwen is reportedly under investigation from New York’s Superintendent of Financial Services, Mr. Benjamin Lawsky, for backdating. The letters were sent to borrowers who had “problem loans” (borrowers who had a hard time making payments) and had requested loan modifications to have easier terms. The letters denied these borrowers loan modifications and allowed them an opportunity to appeal within 30 days. However, Ocwen “unknowingly” backdated the letters, so the 30 day appeal window had often closed well before the borrowers received the letters.
This case was brought to light after an Ocwen employee discovered and reported instances of backdating to his superiors, and yet was ignored. Almost a year later, the letters still haven’t been corrected. Ocwen’s stock price fell 18% to $21.48 on Tuesday, October 21 when the public was made aware of the situation. Ocwen claims backdating was a software error and that cases of it happening were only in the hundreds. However, research done by Lawsky shows that the number of backdated letters is at least in the thousands and that Ocwen hasn’t made any effort to correct the error.
Ocwen’s Ethics and Compliance Program seems to be lacking given the current situation. Although their website boasts a “Code of Conduct and Ethics”, an employee who followed those rules in reporting backdating was ignored and the errors he discovered have not been corrected a year later. Given Ocwen’s unethical conduct in the past (misleading and cheating customers in 2013, leading to the company paying back $2 billion in relief), it is not a stretch of the imagination to believe that Ocwen knowingly backdated those letters.
Ocwen’s path to deceive its customers can be followed by the “Fraud Triangle”, in which a company and/or employee has a motive for fraud, rationalizes it, and acts if given the opportunity (provided they are competent in doing so). In this situation, Ocwen has a profit motive to deceive its customers; by backdating letters rejecting its customers from loan modifications, it increases the likelihood that the customer forecloses and gives up their home, which is a financial win for Ocwen. They rationalize their actions denying their responsibility for the backdating, blaming it on “software errors” that they had no control over. The opportunity was always present, as Ocwen is the largest nonbank mortgage servicing corporation in the U.S., and there are surely a large number of borrowers struggling to make payments. As a company that has committed fraud in the past, they are competent in doing so. Although they have been caught in several instances, there may be many more that have occurred but have not been discovered or reported yet.
As management has obviously done a poor job in leading the company ethically, I believe they must set up a system of checks and balances to curb the rampant fraudulent behavior. Although they have a code of conduct and ethics, I believe a strengthened ethics program and compliance system would be very beneficial to the organization. If they cannot make these changes, I believe a fresh start with new management might be a step forward in a positive direction. Judging by the determined approach of Mr. Lawsky, that change may not be far off.
Sterngold, James. “Ocwen Accused Anew Of Improper Practices.” The Wall Street Journal [New York City] 22 Oct. 2014: C1-C2. Print.