Complaint Review: OCWEN OCWEN FEDERAL BANK FSB OCWEN LOAN SERVICING - ORLAND AND WEST PALM BEACH Florida

Ocwen facing litigation wave

South Florida Business Journal -- Broward Edition - January 23, 2006

EXCLUSIVE REPORTS

From the January 20, 2006 print edition

Ocwen facing litigation wave Jim F.

Ocwen Financial, one of the nation's largest servicers of mortgages to consumers with low credit scores, may appeal a $1.8 million judgment in Texas as it strives to deal with hundreds of cases alleging fraud.

Plaintiff lawyers are currently seeking class action status for 57 federal cases being consolidated in Chicago and the West Palm Beach company says it is facing 331 lawsuits altogether. Ocwen (NYSE: OCN) previously wound down its savings and loan subsidiary after an enforcement action by the Office of Thrift Supervision.

The allegations are sometimes harsh - one plaintiff describes the company's actions as "naked fraud" - but Ocwen general counsel Paul K. said the lawsuits are partly due to the fact that subprime loans have a higher incidence of late payments. The sheer volume of Ocwen's business also is a factor: It services about 368,000 loans, mostly subprime.

Jury: Award $11.5 million

Among past customers is Sealy D, a home equity loan borrower, who won her fraud claim in Texas. A jury on Nov. 29 said she should get $11.5 million. On Jan. 17, Judge Susan C., of Texas' 212th Judicial District, said she was preparing to sign an order cutting that to $1.8 million.

Sealy D's attorney, Robert H of Corpus Christi, said: "The jury believed that Ocwen has a scheme of stealing homes" by classifying timely payments as late and then beginning a foreclosure proceeding.

"We think the evidence supported the $11.5 million verdict," he said. He proposed the lower figure based on what he determined to be Texas precedents on juries' multiple damage assessments.

Attorneys for Ocwen asked that the verdict be reversed or that no penalty should be assessed.

In its appeal, Ocwen plans to keep pressing that Sealy D was in "severe delinquency," Koches said.

But Ocwen probably isn't done with Robert H. The attorney said he is preparing to file about 100 suits for Texas residents who claim Ocwen falsified mortgage payments and began foreclosure proceedings.

An exact number of suits that customers have filed against Ocwen and its former Ocwen Federal Bank subsidiary was not readily available.

The Business Journal's review of court filings shows Ocwen and affiliates are defendants in more than 500 civil suits filed in federal courts since 2002. Many of the cases have more than one customer among plaintiffs. About 100 of the cases are still pending.

"Annually, we resolve 75 to 80 percent of severe delinquencies before they go to foreclosure, by modifying the loan or granting other forbearance," Koches said.

Ocwen and its outside law firms are reviewing the Galveston court's $1.8 million judgment to determine their next possible step, he said. Possibilities include asking the district court to reduce the amount or set it aside, or file an appeal with a state court of appeals in Houston.

In 2004, Ocwen asked the U.S. Judicial Panel on Multi-District Litigation to begin consolidating a number of federal cases filed against it and its affiliates. Ocwen's records show that 57 active cases have been consolidated in U.S. District Court in Chicago.

Attorney is plaintiff

K.H., a Hartford, Conn., attorney, is among Ocwen customers whose suits are part of that consolidation.

H. said he bought a home in Hartford in August 1997, with a $75,000 loan from Ocwen Federal Bank, which also serviced the loan. H. said he began making payments ahead of schedule, and has cancelled checks from his bank.

Within one month, he said, Ocwen began sending him notices that payments were late and two months later he was contacted by a foreclosure specialist from the company.

After challenging that foreclosure action in a state court, H. filed his federal suit seeking damages in 2002.

"In the cases that have consolidated and in hundreds of other cases, Ocwen has committed naked fraud like this," H. said.

Koches did not return calls regarding H.'s case.

Thrift dissolved

Customer complaints about loan servicing at Ocwen Federal, which was based in Fort Lee, N.J., resulted in the U.S. Office of Thrift Supervision's April 2004 enforcement action against the bank.

Ocwen Federal signed a written agreement with the OTS, in which it agreed to improve its compliance with the Real Estate Settlement Procedures Act, the Fair Debt Collection Practices Act and the Fair Credit Reporting Act.

In June 2005, the OTS approved Ocwen Financial's request for "voluntary dissolution" of Ocwen Federal.

In that arrangement, Ocwen Financial sold the bank's Fort Lee office to Marathon National Bank of Astoria, N.Y., and transferred its assets and liabilities to several other banks.

Amid the lawsuits, Ocwen's stock price fell 9 percent during 2005, from $9.56 to $8.70. The stock rebounded to a $9.39 close on Jan. 17. Ocwen has not yet reported full-year 2005 results.

The company reported net income of $13.2 million, or 21 cents a share, for 2005's first three quarters. That compared with net income of $55.2 million, or 78 cents a share, for 2004's first three quarters.

Ocwen's 2004 results include income tax benefits of $31.8 million, and its 2005 results included income tax provisions of $5.1 million.

Kyndall

Gastonia, North Carolina
U.S.A.

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