Mortgage servicer Ocwen Financial Corp. was ordered to pay $268 million in principal reductions and nearly $23 million in reimbursements to California homeowners foreclosed on between January 1, 2009 and December 31, 2012. This California restitution is part of a recent $2.1 billion national settlement.

California is to receive roughly 13% of the national settlement. However, California mortgages amount to roughly 25% of all home mortgage dollars in the U.S.

Ocwen leads the nation in non-bank mortgage servicing, but has been the subject of consumer complaints ranging from failing to honor mortgage modifications granted by previous servicers to charging unauthorized fees.

The settlement arrives at a time when the Big Banks and mortgage servicers are already being scrutinized for their misconduct. Criminal prosecutions will follow for Big Banks, but not until the economy is sufficiently recovered to avoid disruption by an indictment of one or more of our national Big Banks.

Foreign-owned banks are first on the list for prosecution. As the recovery transitions into a virtuous economic expansion, the domestic heavyweights (a.k.a., the Big Banks) will be dismantled to prevent a repeat of the “too big to fail” phenomenon experienced during the Great Recession.

However, thus far, recent settlements have fallen short in their reimbursement to victimized homeowners. We have written extensively on settlements that let the lender off easy, and fail to improve circumstances for but a very few lucky homeowners.

Ocwen’s settlement does funnel money directly into the hands of borrowers, but is it enough to effectively cover the damage done by subprime loans and the adjustable rate mortgages (ARMs) of the 2000s? Ocwen services 390,000 mortgages in California. 12% — nearly 49,000 — of those mortgages are underwater.

To meet the settlement’s $268 million requirement in California, Ocwen need only reduce the principal balance of each underwater mortgage by $5,400. That’s a paltry three, maybe two, months’ worth of mortgage payments.

Additionally, 185,000 consumers with Ocwen mortgages nationwide were foreclosed on during the settlement’s 2009-2012 time period for reimbursements. The settlement claims to secure $125 million in reimbursements for those 185,000 consumers, divided evenly amongst them, which could result in only $675 per consumer.

Actual reimbursement amounts depend on the number of eligible borrowers who submit valid claims, likely to increase individual payouts. To be eligible for reimbursement, homeowners must meet the following requirements:

  • their home was foreclosed between January 1, 2009 and December 31, 2012;
  • their mortgage was serviced by Ocwen, Homeward or  Litton;
  • they made at least three payments on the mortgage;
  • they occupied or intended to occupy the property as their primary residence at the time of origination;
  • the property was a one-to-four unit residential property;
  • the unpaid principal balance on the first lien did not exceed $729,750 for a one-unit property, $934,200 for a two-unit property, $1,129,250 for a three-unit property and $1,403,400 for a four-unit property; and
  • they submit a valid claim.

However, the settlement does not dictate which underwater homeowners with Ocwen mortgages are entitled to principal reductions, nor does it ensure all underwater homeowners will receive relief.

The settlement merely specifies principal mortgage reduction criteria Ocwen is to follow to be considered compliant with the settlement, including:

  • at the time the modification is offered, the borrower is at least 30 days delinquent or is at risk of default due to their financial situation;
  • the borrower’s pre-modification loan-to-value ratio (LTV) is greater than 100%;
  • the borrower’s post-modification principal and interest payment is at least 10% lower than the pre-modification payment;
  • the borrower’s post-modification payment is at or below a debt-to-income ratio (DTI) of 31%;
  • the borrower’s payments under the modified terms are current as of 90 days following the mortgage modification; and
  • the borrower’s post-modification LTV is no greater than 120%, determined in accordance with HAMP.

Ocwen is to contact some consumers directly to discuss modification options. However, if consumers are not contacted by Ocwen, the Consumer Financial Protection Bureaus (CFPB) advises homeowners to take the first step and contact Ocwen themselves. (Is even the CFPB doubting Ocwen’s diligence in complying with the settlement terms?)

As far as Ocwen meeting the terms of the settlement, its compliance has yet to be confirmed. According to a representative from the National Mortgage Oversight (NMO), the monitor’s testing for Ocwen is scheduled to begin July 1, 2014. Ocwen is required to report on its consumer relief activity through 2014 by February 15, 2015, after which the NMO will release an updated report.

So, is this real relief for California homeowners? Sure – for the relative few homeowners who are eligible for payouts or permanent mods. But the high number of underwater mortgages means significant relief is not guaranteed for all. Borrowers with Ocwen mortgages need not be encouraged to hold their breath.

Re: Mortgage servicer to pay $268 million to Californians from the Los Angeles Times and Ocwen Settlement: Inland homeowners vexed by attempts to file for mortgage relief from the Press Enterprise