NY Fights Bank Subpoenas In Ocwen Loan Mod Suit

Law360, New York (May 20, 2015, 11:09 PM ET) — A Texas federal judge on Wednesday allowed the New York State Department of Financial Services to intervene to fend off subpoenas for bank examinations in a suit alleging Ocwen Loan Servicing LLC provided false information on applications for a federal loan modification program.
U.S. District Judge Amos Mazzant granted the request from the New York agency to step in to the False Claims Act suit against Ocwen after the suits’ relators, Michael J. Fisher and Brian Bullock, subpoenaed StoneTurn Group LLP and Boston Portfolio Advisors Inc. for records of an examination they had conducted on Ocwen at the request of the agency.

The department had argued that under New York banking law, all reports of examinations and investigations are confidential and not subject to subpoena without permission from the agency’s superintendent.

“The department has no desire to take a position on the merits of this lawsuit or to interfere with the prompt resolution of the pending dispute,” the motion said. “The department’s sole interest is to protect its bank examination privilege and the public policy considerations that it represents.”

Counsel for Ocwen and the relators both greenlighted the intervention, according to the motion.

Fisher and Bullock filed the case in  August 2012, claiming Ocwen fraudulently persuaded Fannie Mae to execute service-participation agreements allowing Ocwen to participate in the U.S. Department of the Treasury’s Home Affordable Modification Program.

The program helps struggling homeowners avoid foreclosure by lowering interest rates and payments, extending terms and forgiving principal, but in Ocwen’s case it led to homeowners losing their properties while executives took nearly $2 billion in incentive payments from the government, according to the suit.

Ocwen is accused of submitting false annual certifications and representations of compliance with federal and state laws, regulations and requirements, and then submitting false claims for incentive payments. The suit accuses the bank of violating the Truth in Lending Act, the Home Ownership and Equity Protection Act, the Federal Trade Commission Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Fair Housing Act, and other federal and state laws regarding predatory lending practices and tenant rights.

Ocwen didn’t have an FHA-compliant loss mitigation program but made false representations that it did, according to the suit. It also violated the TILA and state laws by not informing customers of their right to rescind loan modification agreements, the suit alleges.

“Without the statutorily required notice that the borrower had three days after consummation of the agreement to rescind, the borrower lacked the important information that there was still time to back out of what the borrower might realize was neither in his or her best interest nor that of his or her family,” the suit said. “The borrower was entitled to consider his or her modification ramifications with ‘eyes wide open.’ … This material omission was to the detriment of the borrower, generally, while [Ocwen] enjoyed unlawful benefits of receiving many millions of dollars of incentive payments on the basis of its false statements and false certifications to the United States.”

In a motion to throw out the case, Ocwen’s counsel, Gerard E. Wimberly Jr. ofMcGlinchey Stafford PLLC, scoffed at the “rambling 83-page complaint.” Ocwen received the highest possible rating in Freddie Mac’s most recent quarterly service assessment, the company said in the September motion.

“Quixotically, [Fisher] sees problems that do not exist in a misguided attempt to support claims that are not actionable under the False Claims Act,” he said. “Indeed, after having nearly two years to investigate Fisher’s allegations, the United States declined to intervene in this case.”

The company argued that TILA doesn’t apply to the loan modification program, that the suit fails to cite specifics needed for an FCA case and that Ocwen didn’t violate state laws.

“Fisher’s state law disclosure claims suffer from the same fatal defect as his TILA assertions, namely that loan modifications do not constitute a refinancing or a new extension of credit, and thus disclosures were not required with the modifications,” the motion said. “Because Fisher cannot establish any state law violations as a matter of law, he cannot maintain an FCA claim based upon an alleged false certification of compliance with state law.”

Ocwen declined to comment Wednesday.

Fisher and Bullock are represented by Samuel L. Boyd of Boyd & Associates, Chad B. Walker, Thomas M. Melsheimer and William T. “Tommy” Jacks of Fish & Richardson PC and Roger D. Sanders and J. Michael Young of Sanders O’Hanlon Motley & Young PLLC.

Ocwen is represented by Gerard E. Wimberly Jr., Daniel T. Plunkett, Gabriel A. Crowson, Angelina Christina, Melissa H. Harris, R. Dwayne Danner, H. Hunter Twiford III and John T. Rouse of McGlinchey Stafford PLLC.

The New York State Department of Financial Services is represented by internal counsel Peter C. Dean, Christine R. Cardi and Rosemary Morgan.

StoneTurn is represented by John Buretta of Cravath, Swaine & Moore.

The case is United States of America et al. v. Ocwen Loan Servicing LLC, case number4:12-cv-00543, in the U.S. District Court for the Eastern District of Texas.

–Editing by Richard McVay and Kat Laskowski.


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