Mortgage servicer Ocwen's practices raise ire

By Jeff Ostrowski, Palm Beach Post Staff Writer
Sunday, January 18, 2004

Michelle Trott got a nasty surprise when she sold her home in Broward County last year to move to Jupiter.

Ocwen Financial Corp., the West Palm Beach company that collected Trott's monthly mortgage payments, demanded that she and her husband pay $600 in late fees for monthly payments the Trotts say weren't late.

Ocwen also charged her $200 just to tell her real estate agent how much she owed on her loan, Trott says.

What's more, she says, Ocwen dinged her credit score by reporting her mortgage payments as late, forcing her to pay a higher rate on the new loan on her Jupiter home.

And Ocwen pushed the couple to buy an expensive homeowners insurance policy, even though the Trotts say they already had coverage.

"(Ocwen) posted our payments late all the time," Trott said in a recent interview. "It's not fair. It was a very unpleasant experience. I wouldn't recommend anybody going with that company."

Ocwen President Ronald Faris disputes Trott's claims. She made "dozens" of late payments, he says, and Ocwen forced her to take on a homeowners policy only because she let her policy lapse.

Moreover, he says, Ocwen doesn't charge $200 to issue a payoff amount; the company charges $10 to $30 for that service.

Still, Trott isn't alone in her gripes about Ocwen, a mortgage-servicing company that collects monthly payments from thousands of homeowners nationwide, most of them "subprime" borrowers with spotty credit histories.

Ocwen faces suits from customers in California and Connecticut who make allegations similar to Trott's.

The nonprofit National Consumer Reinvestment Coalition says it has 300 complaints about Ocwen, while the Better Business Bureau of Central Florida last year received 146 consumer complaints about the company, up from 42 in 2002 and nine in 2001.

Firm: No financial incentive

As borrowers' attorneys seek to portray a pattern of unfair practices by Ocwen, company officials say they've done nothing wrong.

Investors seem to agree.

In spite of the lawsuits, the company's stock (NYSE: OCN) recently shot past $10, up from $2.60 a year ago.

Ocwen has no financial reason to gouge customers or to post their mortgage payments late, Faris says. He calls the suits against Ocwen "misdirected and baseless."

"We don't make money off of delinquent loans," Faris says. "Our favorite customer is someone who gets their bill and pays it. We make a ton of money on those customers."

As a mortgage servicer, Ocwen doesn't lend money to borrowers. Rather, lenders hire the company to service their loans.

Attorneys and some industry observers argue that mortgage servicers have a good reason to post payments late: They get to keep late fees.

"Ocwen has a financial incentive to call a payment late so it can collect a late fee," says Jack Guttentag, a professor emeritus at the University of Pennsylvania's Wharton School of Business who runs the Mortgage Professor Web site. "It does not have an incentive to push the borrower into bankruptcy, unless the borrower has so much equity in the property that it will cover all the expenses of foreclosure, including legal and other fees which can be a source of profit to the servicer."

Faris denies Ocwen unfairly posts payments late, and he says the seemingly large numbers of consumer complaints sound worse than they are.

Ocwen handles 350,000 home loans, so the several hundred complaints lodged by customers represent a tiny fraction of its clients, Faris says.

"We're not saying we never make a mistake," Faris says. "Mistakes happen on an individual basis."

But, he says, the company tries to fix errors quickly. Its customer service representatives are readily available by phone or by e-mail, Faris says.

That's not the experience of Trott or of Ocwen customer Eleanor Blackmer, who has three years left on the mortgage on her home in suburban Lake Worth.

"We've got a three-year sentence with Ocwen," Blackmer says.

Both Trott and Blackmer say phone calls to Ocwen result in being put on hold 20 minutes or more, followed by conversations with Indian employees with difficult-to-decipher accents.

Ocwen employs more than 1,200 people in India, where it has offices in Bangalore and Bombay.

"You try to call them and they don't understand and they don't speak English, because they're all in India," Blackmer says.

Faris says Ocwen makes a point of hiring Indian employees whose English can be easily understood by Americans.

"It's difficult for me to address the accent issue because I can't comment on someone else's experience," Faris says. "I've talked to many, many of our agents in India on the phone and I've never had a problem understanding them."

Faris says that Ocwen's customer service is better than it's ever been. As a federally chartered thrift, the company's collection practices are closely monitored by the U.S. Office of Thrift Supervision, he says.

The gripes about Ocwen are on the rise, Faris says, because the media have been covering the mortgage industry more closely -- CBS News last year aired a story about complaints against Ocwen -- and because plaintiffs' attorneys are looking for the next payday after Fairbanks Capital.

That mortgage servicer last year agreed to pay $40 million to settle allegations it engaged in deceptive practices that victimized as many as 250,000 homeowners.

"I don't think there's increased complaints," Faris says. "There's increasing attention by the media and by the plaintiffs' lawyers. They saw what happened at Fairbanks Capital and are hoping they can find a situation similar to that."

Analysts approve

The barrage of complaints against Ocwen comes as the company pulls off a financial turnaround.

Its shares got a boost this month when an analyst at JMP Securities in San Francisco rated Ocwen a "strong buy" with a target price of $18 a share.

After posting big losses in 2001 and 2002, Ocwen turned a profit in 2003, in part because it has cut costs by hiring customer service employees and software programmers in India, where wages are cheaper than in the United States.

And the company last year won a contract to handle the foreclosed properties of the U.S. Department of Veterans Affairs, a deal that could bring in revenue of $95 million to $125 million over the next five years.

Still, the lawsuits pose enough of a threat to Ocwen that Fitch Ratings, a corporate credit rating agency, warned last month it might lower its "servicer rating" on Ocwen.

"We're concerned," said Kathleen Tillwitz, senior director at Fitch Ratings. "Is it a pattern of mistakes that were malicious? Or is it just the one-off mistakes that happen in the daily course of servicing?"

Fitch has yet to lower its ratings on Ocwen, however. In a statement last month, it lauded the company for "successful practices and procedures," "expertise" and "well-trained staff."

Meanwhile, consumers' gripes keep coming and Ocwen keeps explaining.

Jackson, Mich., homeowner RaeAnn Walker says Ocwen has unfairly posted her payments late and charged her legal fees.

And one suit accuses Ocwen of unfairly charging borrowers $95 in legal fees for collection letters.

Faris calls the charge a legitimate cost of doing business.