New York State Superintendent of Financial Services Benjamin M. Lawsky has announced that New York’s Department of Financial Services and the New York State Banking Department have entered into an agreement with Goldman Sachs Bank, Ocwen Financial Corporation and Litton Loan Servicing LP to adhere to landmark new Mortgage Servicing Practices. The agreement was required by the Superintendent as a condition to allowing Ocwen’s acquisition of Goldman Sachs’ mortgage servicing subsidiary, Litton. With the Litton acquisition, Ocwen’s mortgage servicing entity, Ocwen Loan Servicing LLC, will become the 12th largest servicer in the nation, handling a very large number of customers in foreclosure or facing possible foreclosure.
“This agreement provides important consumer protections for homeowners who have found themselves in dire straits due to the financial crisis,” said Superintendent Lawsky. “Our agreement sets a new higher standard for the residential mortgage servicing industry, whose troubling foreclosure and servicing practices we have been investigating along with other regulators across the country. Goldman Sachs, Ocwen and Litton have now all agreed to put the rights of homeowners ahead of their profit margins by implementing these changes.”
As a further condition to his issuance of a “No Objection” letter on the Litton acquisition, Lawsky obtained a commitment from Goldman Sachs to assist affected homeowners by writing down approximately $53 million in unpaid principal. Goldman’s commitment will forgive 25 percent of the principal balance on all 60-day delinquent home loans in New York serviced by Litton and owned by Goldman Sachs as of Aug. 1.
The agreement is a condition of the acquisition and does not preclude any future investigations of past practices or release any future claims or actions whatsoever.
The new Agreement on Mortgage Servicing Practices that Goldman, Ocwen and Litton have signed makes important changes in the mortgage servicing industry, including the robo-signing controversy; weak internal controls and oversight that compromised the accuracy of foreclosure documents; unfair and improper practices in connection with eligible borrowers’ attempts to obtain loan modifications of their mortgages or other loss mitigation, including improper denials of loan modifications; and imposition of improper fees by servicers.
The Mortgage Servicing Practices Agreement makes the following changes:
►Ends robo-signing and imposes staffing and training requirements that will prevent Robo-signing.
►Requires servicers to withdraw any pending foreclosure actions in which filed affidavits were robo-signed or otherwise not accurate.
►Requires servicers to provide a dedicated Single Point of Contact (SPOC) representative for all borrowers seeking loss mitigation or in foreclosure, preventing borrowers from getting the runaround by being passed from one person to another. It also restricts referral of borrowers to foreclosure when they are engaged in pursuing loan modifications or loss mitigation.
►Requires servicers to ensure that any force-placed insurance be reasonably priced in relation to claims incurred, and prohibits force-placing insurance with an affiliated insurer.
►Imposes more rigorous pleading requirements in foreclosure actions to ensure that only parties and entities possessing the legal right to foreclose can sue borrowers.
►For borrowers found to have been wrongfully foreclosed upon, requires servicers to ensure that their equity in the property is returned, or, if the property was sold, compensate the borrower.
►Imposes new standards on servicers for application of borrowers’ mortgage payments to prevent layering of late fees and other servicer fees and use of suspense accounts in ways that compounded borrower delinquencies and defaults.
►Requires servicers to strengthen oversight of foreclosure counsel and other third-party vendors, and imposes new obligations on servicers to conduct regular reviews of foreclosure documents prepared by counsel and to terminate foreclosure attorneys whose document practices are
problematic or who are sanctioned by a court.
Ocwen and Litton are immediately taking steps to implement these servicing practices. Goldman, which is exiting the mortgage servicing business with the sale of Litton, has agreed to adopt these servicing practices if it should ever reenter the servicing industry.