(New throughout, adds Ocwen’s statements, expert comments, updates share price)
By Karen Freifeld and Peter Rudegeair
NEW YORK, Oct 21 (Reuters) - Ocwen Financial Corp may have harmed hundreds of thousands of borrowers by sending backdated letters about loan modifications and foreclosures, New York state’s financial regulator said on Tuesday, sparking a selloff in shares of the mortgage servicer.
The company denied loan modifications in letters that borrowers received more than 30 days after they were mailed, cutting off their opportunity to appeal, according to an Oct. 21 letter from New York Financial Services superintendent Benjamin Lawsky to Ocwen.
Borrowers facing foreclosure received letters from Ocwen with cure dates that had passed months earlier, the letter said. Such activity violated state and federal laws, Lawsky said.
Shares of Ocwen sank 18.2 percent on news of Lawsky’s letter, closing down $4.78 at $21.48 on the New York Stock Exchange. They slid as much as 29.3 percent to a session low of $18.57, their lowest level since July 2012.
Atlanta-based Ocwen, one of the largest U.S. mortgage servicers, issued a statement blaming the improperly dated letters on software errors. It said it believes it has resolved the dating issues found so far.
The company’s statement said 283 New York borrowers received letters with incorrect dates, and added that 281 “are currently borrowers with us.” Ocwen later amended that statement to say it is aware of borrowers in New York beyond the 283 who received letters with incorrect dates but does not yet know how many.
“We are working with and fully cooperating” with the regulator, Ocwen said.
In his letter to Ocwen general counsel Timothy Hayes, Lawsky said an Ocwen employee had alerted a compliance executive to backdating problems about a year ago, and raised the issue again after being ignored for five months, yet the company failed to launch an appropriate investigation.
Lawsky, who runs the New York Department of Financial Services, demanded that Ocwen “fix its systems without delay.”
This past June, a monitor discovered a 2012 letter, backdated 41 days, denying a loan modification. The company told the regulator over the summer it discovered the issue in April or May of 2014. It said it involved around 6,100 letters and it had changed its system to fix the problem.
“Each of these representations turned out to be false,” Lawsky said in his letter.
Ocwen has faced more intense supervision from the New York regulator since February, when its proposed purchase of servicing rights on $39 billion of mortgages from Wells Fargo & Co was indefinitely halted.
Lawsky has also questioned Ocwen’s business ties to affiliates, as has the U.S. Securities and Exchange Commission. The servicer disclosed that the SEC has been looking into its restated financials as well.
The New York regulator and the SEC have been coordinating parallel probes, according to a person familiar with the matter. The person was not aware of any federal authorities looking into the backdating. Spokespeople for both agencies declined comment.
Michael Bresnick, former director of President Barack Obama’s Financial Fraud Task Force, said the U.S. Department of Justice might become interested in examining whether the backdating violated federal civil fraud laws.
“A central issue will be whether this was simply an isolated mistake ... or part of a larger scheme to defraud homeowners,” Bresnick said.
A DOJ spokeswoman did not immediately respond to a request for comment.
The release of the letter shows New York’s issues with Ocwen are not going away and other regulators may start investigations, Compass Point Research and Trading analyst Kevin Barker said in a report on Tuesday.
Jaret Seiberg, an analyst at Guggenheim Partners, expressed similar sentiments.
“If Ocwen intentionally misdated letters to deprive borrowers of modifications, then it could be exposed to serious legal liability,” Seiberg said. (Reporting by Karen Freifeld and Peter Rudegeair in New York, additional reporting by Jonathan Stempel in New York, Aruna Viswanatha and Sarah Lynch in Washington; editing by David Gregorio)