For those folks familiar with the lending and servicing industries, Ocwen is likely a familiar name. Metaphorically speaking, it has become a regulatory piñata, with many state and federal watchdogs taking swipes at the company whenever the mood strikes. However, this attention is not necessarily undeserved or unexpected. It goes with the territory. You see, Ocwen is a – pardon another metaphor – a carrion eater; its business model includes servicing distressed mortgages, i.e. those in default and possible heading to foreclosure. It is the collection agent of last resort, the company that pays lenders money for the privilege of foreclosing homeowners.
I have written occasional posts about Ocwen largely because it’s the poster child for everything that is wrong with companies that have adopted this business model. See links, here, here, and here. A Google search of “Ocwen lawsuits” here, confirms that this company appears to be competing for first place in the Rogue’s Gallery of Mortgage Servicing Miscreants.
And, of course, all of this negative publicity has not been ignored by Wall Street; in November 2013, Ocwen’s stock hit an all-time high of $56.66/share. Today it clings to the bottom rung, at $2.69.
So what’s Ocwen done today to grab the headlines – did it send out Vino and Luigi to knee-cap some distressed homeowners for missing a payment? Actually, it seems that another financial services company “out-Ocwened” Ocwen. Here’s the sub rosa story:
In January 2015, Ocwen entered into a Consent Order (housingwire.com article and Order here) with the California Department of Business Oversight over its deplorable servicing practices in the state, and agreed to undergo a 24-month review by an independent company. Fidelity Information Services (“FIS”)[1] was selected by the regulator at a proposed budget of $44.8 million dollars for the two year period. As a part its written terms of engagement, FIS was to conduct a loan-by-loan review of some 50,000 mortgage files Ocwen serviced for California homeowners.
On May 18, 2017, Ocwen, a fraction the size of FIS[2], filed suit against it, alleging, among other things, fraud, deceit, and misrepresentation, in the reviewing services it was ostensibly performing for the California Department of Business Oversight board.
Essentially, Ocwen, the company that had, in the past, been accused of all sorts of unethical conduct vis-à-vis struggling homeowners, was now claiming it was being taken advantage of by a neighborhood bully even bigger than it was. [Can you spell K-A-R-M-A?] A copy of the complaint can be found here – it makes interesting reading.
Lest anyone think Ocwen learned its lesson in the 2015 regulatory slap-down, it didn’t. In February 2017, it entered into another, even larger, Consent Order with the Oversight board, requiring payment of $25 Million in consumer restitution and $198 Million in debt forgiveness to borrowers whose loans it had been servicing – and doing a bad job of it at that.
But back to the 2015 Consent Order that required the auditing of Ocwen’s 50,000 mortgage servicing files. What has recently grabbed the headlines, is that according to Housingwire.com here, Ocwen claims that at its expense, and ostensibly as part of the auditing services it was to perform, FIS’s employees expensed meals at the following strip clubs and casinos: The Lodge: America’s Best Gentlemen’s Club; WinStar World Casino; Spearmint Rhino Gentleman’s Club; Buck’s Cabaret; and Harrah’s Casino.[3] The complaint describes a litany of other, albeit, less prurient, examples of billing fraud by FIS’s employees:
- “FIS allowed associates to buy liquor and groceries for personal, at-home consumption, as well as gifts for colleagues, and charged those expenses to Ocwen”;
- “FIS charged Ocwen for hotel stays that exceeded the parties’ permissible nightly limits, at times by more than double those limits”;
- “FIS charged Ocwen mileage expenses for daily round-trip commutes of up to 300 miles, all while those same associates purported to work in excess of 11 hours a day in addition to their commutes”; and
- “FIS charged Ocwen for mileage expenses reflecting thousands of miles of car travel in a single month for associates who stayed at hotels very near their worksites, which should have minimized commutes.”
Para. 9 of the Complaint puts a fine point on the cost of this alleged behavior:
As a direct result of FIS’s fraudulent charges and artificially-inflated invoices, FIS ran through the $44.8 million budget for the entire two-year review in just 11 months, while delivering less than half of the work it was hired to do. FIS was on pace to charge Ocwen $120 million—nearly triple the project budget.
Although fraudulent billing practices are no laughing matter, regardless of industry, there is a whiff of comeuppance here when it happens to one of the Usual Suspects. Perhaps in the moral relativism of the finance and servicing world – where scruples are actually believed to be an STD and avoided at all costs – Ocwen is not as completely outraged as its lawsuit might suggest. It may simply realize that today there no long is any honor among thieves. ~PCQ
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[1] According to Forbes.com, here: “Fidelity National Information Services, Inc. is a financial services technology company. The company offers solutions in retail and enterprise banking, payments, capital markets, asset and wealth management, risk and compliance, treasury and insurance, as well as providing financial consulting and outsourcing services. It operates through the following segments: Integrated Financial Solutions, Global Financial Solutions, and Corporate & Other. ***” The company was founded in 1968 and is headquartered in Jacksonville, FL.”
[2] FIS’s market cap, i.e. the value of its outstanding shares, is $26.3 billion; Ocwen’s is $335.13 million.
[3] It is unclear which Harrah’s Club the author is referring to in the story.
