Tyesha Hansborough and her husband, Christley Paton, had paid the property insurance on their Inglewood home along with their mortgage, putting the money in escrow like most homeowners.
Trouble is, the couple said, their mortgage servicer — Ocwen Financial Corp. — didn't pass that money on to the insurance company for this year's premiums.
They battled unsuccessfully for months to reinstate the lapsed policy without additional costs, the couple said. Ocwen instead imposed so-called force-placed insurance — expensive coverage that protects the lender's interest but doesn't shield the homeowners from loss.
"There have been so many home-invasion robberies around here, and if that were to happen to us, we wouldn't be covered," Hansborough said, prompting Patton to say: "I feel like we were robbed — by Ocwen."
Ocwen is the largest of a new breed of mortgage servicers now contracting with banks — which want out of that business after the nationwide foreclosure fiasco. The emerging industry has taken on the servicing rights of more than $1 trillion worth of mortgage loans, according to trade publication Inside Mortgage Finance.
The foreclosure fiasco — years of mishandled paperwork, robo-signing of house-seizure documents and other snafus — resulted in the nation's five major banks settling state and federal investigations for $25 billion in 2012.
Regulators also adopted tougher consumer protection laws and required banks to maintain higher capital cushions against losses, making mortgage servicing less profitable for banks.
Now, however, companies such as Ocwen in Atlanta and Nationstar Mortgage Holdings Inc. near Dallas appear overwhelmed with the huge workload — and they're facing some of the same complaints that plagued the major banks.
As specialists in handling delinquent borrowers, non-bank servicers had been thought to be less likely to ignore phone calls, lose paperwork and mishandle accounts. But consumer advocates and the Consumer Financial Protection Bureau said that often has not been the case.
"Simply put, consumers should not be hit with surprises by those collecting their payments," the consumer bureau's deputy director, Steven Antonakes, told a lenders conference early this year.
The troubles have brought on investigations by state and federal regulators, and Ocwen's credit ratings on Wall Street have slipped. Its stock value has fallen by half since the year began.
Ocwen took over bill collection duties for Paton, a Frito-Lay sales representative, and Hansborough, a medical assistant, two years ago from Bank of America Corp. after BofA modified the couple's mortgage to lower their payment. The couple had weathered a bankruptcy in 2004 and a sharp drop in Hansborough's income after the birth of their third child in 2010.
The new servicer paid the first year's insurance premium to the Auto Club of Southern California, but not the second.
Hansborough said she was startled by an Auto Club letter in January saying the bill was overdue. The couple had fallen a month behind on payments to Ocwen, but the company didn't say that was why the premium went unpaid.
Instead, Ocwen representatives told her repeatedly that the company had checked with the insurer and that the bill had been taken care of after all.
"They said, 'Don't worry. It's paid in full,'" she said.
By the time that was proved wrong, the coverage had lapsed.
Ocwen, saying the couple needed to make up a deficit in the escrow account, first raised their monthly payment for loan, taxes and insurance by $200, to $2,400. Then last month, it imposed the force-placed insurance for an additional $200 each month, Hansborough said.
An Ocwen spokesman, Richard Gillespie, said the Auto Club assured the company in February that someone had paid the bill. Auto Club spokesman Jeffrey Spring denied that the insurer had provided that assurance to anyone.
The Auto Club offered a replacement policy through an affiliate, Hansborough said — but for twice what the couple had paid since buying their home in 2007, and only if they spent thousands of dollars to install safety releases on additional security bars covering their windows.
Though Ocwen and the Auto Club blamed each other, they didn't blame the couple. Still, neither company has acted to reinstate coverage on the original terms.
Hansborough said Ocwen agreed this week to drop a separate charge for private mortgage insurance, a premium that the couple had been required to pay because they have no equity in the home. But she still wanted a regular policy instead of the costly force-placed insurance.
"It's not our fault," Hansborough said. "I'm so disgusted."
Ocwen, which describes itself as "the industry leader in servicing high-risk loans," is represented by an outside public relations agency, Sard Verbinnen, which would not comment on the missed payment but emphasized that the company goes to great lengths to help troubled borrowers avert foreclosure.
Treasury Department reports show the company is faster than big banks in processing requests for mortgage modifications under the government's main anti-foreclosure effort, the Home Affordable Modification Program.
The specialty firms like Ocwen don't own most of the loans they service. Instead, they collect and apply payments and handle foreclosures on behalf of the owners and mortgage investors, earning a few hundred dollars a year for each loan.
But some regulators and advocacy groups say their breakneck growth — Ocwen's loan servicing portfolio shot up more than eightfold to 2.9 million loans in four years — has led to frequent errors in handling loan and payment documents.
A recent survey of housing counselors by the California Reinvestment Coalition, an advocate for low-income neighborhoods, showed Ocwen and Nationstar as No. 3 and No. 4 on the list of servicers generating the most complaints. It was the first time that non-banks turned up on the annual survey's problem list, which was headed this year, as it was last year, by Wells Fargo and BofA.
"You may have people who actually got a modification agreement worked out with their bank, but the new servicer doesn't have it," said Kevin Stein, associate director of the California Reinvestment Coalition. "And often you have to start over, and maybe you don't qualify the second time around."
Failing to honor modifications granted by prior servicers and improperly denying modifications were among the allegations last year when Ocwen reached a $2.1-billion settlement with the Consumer Financial Protection Bureau and state regulators over allegations that it abused borrowers. Californians received $268 million of the relief.
But Ocwen's regulatory woes have continued.
Benjamin Lawsky, New York state's top financial regulator, repeatedly questioned whether the company devotes sufficient resources to its increased business. In February, he blocked Ocwen's deal to acquire servicing rights on $39 billion in Wells Fargo mortgages.
More recently, Lawsky has been looking into potential conflicts of interest in Ocwen's dealings with affiliated companies, an issue the Securities and Exchange Commission also is investigating, the company said in its latest quarterly financial report.
Ocwen said it is cooperating with the investigations, which focus among other things on alleged improprieties involving force-placed insurance.
The disputes have soured investors on Ocwen shares, which had risen sharply in recent years. This year, its shares have sunk from $56.39 at the start of the year to $28.37 on Wednesday.