Ocwen's motion to stop HAMP lawsuit gets denied

Whistleblower allegations of False Claims Act violations in a foreclosure prevention program dating back to 2009 are progressing following a U.S. District Court's denial of a servicer's motion to dismiss.

Judge Amos Mazzant in the Eastern District of Texas' Sherman Division denied Ocwen Financial's motion, according to court filings and Bloomberg Law, which was the first to report the development.

At issue in the case, Eichner et al. v. Ocwen Loan Servicing, are allegedly false representations servicers made in the Treasury's Home Affordable Modification Program.

The company had asked for a dismissal based in part on res judicata, which roughly put, is the notion that prior, fully-adjudicated rulings on claims may not be repeated, court documents show. The case shares some similarities with the previously settled Fisher v. Ocwen Loan Servicing whistleblower lawsuit.

In his memorandum opinion and order filed Feb. 13, Mazzant called several of the defendants' arguments "valid" but ruled that they "are best dealt with after the parties have had an opportunity to conduct discovery."

Ocwen could appeal the judge's decision in the Eichner case.

"We have appellate options, we are reviewing those options now," an Ocwen spokesman said.

Jean-Marc Eichner is a former employee who separated from the company prior to the pandemic and signed a related agreement. He and fellow plaintiff Brandon Loyd filed their original claims under seal in July 2019, according to court documents.

Ocwen and other mortgage companies have settled many servicing claims from the Great Recession, when a wave of distressed loans overwhelmed them and the relatively less-automated operations they had then.

Financial institutions that served as trustees for the securitized mortgages involved also have been subject to some litigation from that era and face allegations in the Eichner litigation.

Trustees named in the suit include Wells Fargo, Deutsche Bank, Bank of New York Mellon, and on a successor basis, J.P. Morgan Chase.

Eichner and Loyd also allege in court documents trustee defendants were "vicariously liable for the actions of the Ocwen defendants."

The lawsuit may be worth watching as an example of the type of risks that needs to be managed in mortgage loss mitigation following a U.S. crisis.

To be sure, not all conditions are comparable. There have been far fewer distressed loans in the current cycle than following the Great Recession, when HAMP came into play, and current mods are more streamlined.

However, mods in the wake of the pandemic are similar to those seen following the 2007-2008 meltdown in that they have seen a relative pickup in volume, are incentivized and changing in ways that may complicate compliance.