The state is seeking to suspend the mortgage license of Ocwen Financial Corp., saying the payment collection firm has failed to turn over documentation showing that it complies with California laws protecting homeowners.
The action is the latest against one of the nation's biggest mortgage servicers and raises the level of concern over continuing problems in billing and collecting monthly payments from borrowers, especially those having financial problems.
Investigations have cropped up nationwide into Ocwen and other nonbank servicing firms that have acquired mortgage billing portfolios from major banks, which previously faced state and federal probes.
Banks began shedding the business after many were snared in the nationwide fiasco over lost and mishandled foreclosure paperwork, robo-signed foreclosure documents and other abuses.
California's action accuses Ocwen of defying requests for information by the California Department of Business Oversight, which licenses nonbank mortgage lenders and providers of collection and foreclosure services.
Ocwen, which specializes in handling troubled home loans, is the largest mortgage servicer not affiliated with a bank and the nation's fourth-largest servicer overall.
Losing a California license would mean that Ocwen, based in Atlanta, would have to sell its rights to handle bill collection and foreclosures in the state, said Tom Dresslar, spokesman for the state agency.
That could be a big blow to Ocwen, which counts California as its biggest source of business. As of Sept. 30, the company serviced 378,132 home loans in California with unpaid principal of $95 billion. That amounts to 15% of Ocwen's total loans and 23% of the total balance due.
Ocwen, whose shares have fallen nearly 80% since hitting a high 15 months ago, said it is "working constructively" to meet the department's demands and is "focused on the continued improvement of our processes and procedures."
"Under the oversight of our newly hired chief risk officer, we are cooperating fully with the [state agency] and recently provided what we believe to be accurate and complete information," the company said.
It already has spent hundreds of millions of dollars to settle investigations into alleged abuse and corporate conflicts of interest. It also has been forced to call off large purchases of mortgage servicing rights and to oust its founding chairman, William Erbey, as part of a $150-million settlement with New York regulators.
Others questioning its practices include the Consumer Financial Protection Bureau, 49 state attorneys general and Joseph Smith, the monitor for the $25-billion national settlement of foreclosure abuses reached with major banks in 2012.
California officials said the state is looking into potential violations of the California Homeowners Bill of Rights, a package of laws passed in reaction to foreclosure abuses, and the California Residential Mortgage Lending Act, under which Ocwen is licensed.
An accusation detailing the state's complaints was issued in October by Commissioner of Business Oversight Jan Lynn Owen. The dispute stems from a routine examination of Ocwen that began in January 2013, Owen said in the accusation.
By October 2013, according to the accusation, examiners were telling Ocwen that it had supplied too little information for them to determine its compliance with the Homeowners Bill of Rights. The law's provisions include a requirement that servicers provide a single point of contact for troubled borrowers and a ban on dual tracking, the practice of negotiating over a loan modification while at the same time pursuing a foreclosure.
Despite an escalating series of demands and finally a judicial order, the agency contends that Ocwen has never provided all the information the department was seeking, including reports on a sample of 1,320 loans the company services.
Owens' accusation, a formal notice of intent to suspend Ocwen's license for a year, lists 10 separate requests over more than 18 months that met with incomplete responses.
The state agency has twice imposed the $1,000 maximum penalty it is allowed on a licensee that fails to provide information.
Dresslar, the department's spokesman, said that from January 2013 to the end of October, the agency received 261 complaints against Ocwen, of which 37 included issues under the Homeowners Bill of Rights.
"They failed to comply with requests for information. They failed to comply with a subpoena for information. They violated a lawful order from the commissioner. And they failed to comply with an order from an administrative law judge," Dresslar said. "We can't countenance that kind of behavior."
Susan L. Formaker, a presiding administrative law judge in Los Angeles, has scheduled settlement conferences beginning next month. If those fail, a hearing in July could lead to a license suspension late this year. If that occurs, the department would require Ocwen to sell off its rights to service loans in California, Dresslar said.
As it ballooned in size, Ocwen's stock price quadrupled over the course of two years to top down 73 cents, or 5.7%. out at $59.97 a share in October 2013. It closed Monday at $12.19,