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Justice Department Recovers Over $3.5 Billion From False Claims Act Cases in Fiscal Year 2015

Justice Department Recovers Over $3.5 Billion From False Claims Act Cases in Fiscal Year 2015

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Department of Justice
Office of Public Affairs

FOR IMMEDIATE RELEASE
Thursday, December 3, 2015

Justice Department Recovers Over $3.5 Billion From False Claims Act Cases in Fiscal Year 2015

Recoveries Exceed $3.5 Billion for Fourth Consecutive Year

The Department of Justice obtained more than $3.5 billion in settlements and judgments from civil cases involving fraud and false claims against the government in the fiscal year ending Sept. 30, Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division, announced today.  This is the fourth year in a row that the department has exceeded $3.5 billion in cases under the False Claims Act, and brings total recoveries from January 2009 to the end of the fiscal year to $26.4 billion.

“The False Claims Act has again proven to be the government’s most effective civil tool to ferret out fraud and return billions to taxpayer-funded programs,” said Mizer.  “The recoveries announced today help preserve the integrity of vital government programs that provide health care to the elderly and low income families, ensure our national security and defense, and enable countless Americans to purchase homes.”

Of the $3.5 billion recovered last year, $1.9 billion came from companies and individuals in the health care industry for allegedly providing unnecessary or inadequate care, paying kickbacks to health care providers to induce the use of certain goods and services, or overcharging for goods and services paid for by Medicare, Medicaid, and other federal health care programs.  The $1.9 billion reflects federal losses only.  In many of these cases, the department was instrumental in recovering additional millions of dollars for consumers and state Medicaid programs.

The next largest recoveries were made in connection with government contracts.  The government depends on contractors to feed, clothe, and equip our troops for combat; for the military aircraft, ships, and weapons systems that keep our nation secure; as well as to provide everything that is needed to fund myriad programs at home.  Settlements and judgments in cases alleging false claims for payment under government contracts totaled $1.1 billion in fiscal year 2015.

The False Claims Act is the government’s primary civil remedy to redress false claims for government funds and property under government contracts, including national security and defense contracts, as well as under government programs as varied as Medicare, veterans’ benefits, federally insured loans and mortgages, highway funds, research grants, agricultural supports, school lunches, and disaster assistance.  In 1986, Congress strengthened the Act by amending it to increase incentives for whistleblowers to file lawsuits on behalf of the government.

Most false claims actions are filed under the Act’s whistleblower, or qui tam, provisions that allow individuals to file lawsuits alleging false claims on behalf of the government.  If the government prevails in the action, the whistleblower, also known as the relator, receives up to 30 percent of the recovery.  Whistleblowers filed 638 qui tam suits in fiscal year 2015 and the department recovered $2.8 billion in these and earlier filed suits this past year.  Whistleblower awards during the same period totaled $597 million.

Health Care Fraud

Including this past year’s $1.9 billion, the department has recovered nearly $16.5 billion in health care fraud since January 2009 to the end of fiscal year 2015 – more than half the health care fraud dollars recovered since the 1986 amendments to the False Claims Act.   These recoveries restore valuable assets to federally funded programs such as Medicare, Medicaid, and TRICARE – the health care program for the military.  But just as important, the department’s vigorous pursuit of health care fraud prevents billions more in losses by deterring others who might otherwise try to cheat the system for their own gain.  The department’s success is a direct result of the high priority the Obama Administration has placed on fighting health care fraud.  In 2009, the Attorney General and the Secretary of the Department of Health and Human Services, the department that administers Medicare and Medicaid, announced the creation of an interagency task force called the Health Care Fraud Prevention and Enforcement Action Team (HEAT), to increase coordination and optimize criminal and civil enforcement.  Additional information on the government’s efforts in this area is available at StopMedicareFraud.gov, a webpage jointly established by the Departments of Justice and Health and Human Services.

Two of the largest health care recoveries this past year were from DaVita Healthcare Partners, Inc., the leading provider of dialysis services in the United States.  DaVita paid $450 million to resolve allegations that it knowingly generated unnecessary waste in administering the drugs Zemplar and Venofer to dialysis patients, and then billed the government for costs that could have been avoided.  DaVita paid an additional $350 million to resolve claims that it violated the False Claims Act by paying kickbacks to physicians to induce patient referrals to its clinics.  DaVita is headquartered in Denver, Colorado, and has dialysis clinics in 46 states and the District of Columbia.

Hospitals were involved in nearly $330 million in settlements and judgments this past year.  A cardiac nurse and a health care reimbursement consultant filed a qui tam suit against hundreds of hospitals that were allegedly implanting cardiac devices in Medicare patients contrary to criteria established by the Centers for Medicare and Medicaid Services in consultation with cardiologists, professional cardiology societies, cardiac device manufacturers, and patient advocates.  The department settled with nearly 500 of these hospitals for a total of $250 million, including $216 million recovered in the past fiscal year.  For details, see 500 Hospitals.

Several settlements involved violations of the Stark Law.  The Stark Statute prohibits certain financial relationships between hospitals and doctors that could improperly influence patient referrals.  Services provided in violation of the Stark Statute are not reimbursable by Medicare or Medicaid.  Hospitals settling false claims involving Stark violations include Adventist Health System for $115 million, an organization that operates hospitals and other health care facilities in 10 states; North Broward  Hospital District for $69.5 million, a special taxing district of Florida that operates hospitals and other health care facilities in Broward County, Florida; and Georgia hospital system Columbus Regional Healthcare System and Dr. Andrew Pippas for $25 million plus contingent payments up to an additional $10 million.  The Adventist settlement also involved allegations of miscoding claims to obtain higher reimbursements for services than allowed by Medicare and Medicaid.

Claims involving the pharmaceutical industry accounted for $96 million in settlements and judgments.  Daiichi Sankyo Inc., a global pharmaceutical company with its U.S. headquarters in New Jersey, paid $39 million to resolve allegations of false claims against the United States and state Medicaid programs.  Daiichi allegedly paid kickbacks to physicians to induce them to prescribe Daiichi drugs, including Azor, Benicar, Tribenzor and Welchol.  Medicare and Medicaid prohibit reimbursement for drugs involved in kickback schemes.  AstraZeneca LP and Cephalon Inc. paid the United States $26.7 million and $4.3 million, respectively, in separate settlements for allegedly underpaying rebates owed under the Medicaid Drug Rebate Program.  As part of those settlements, the two drug manufacturers agreed to pay an additional $23 million to state Medicaid programs for their losses.  And in another settlement, PharMerica Corp., the nation’s second largest nursing home pharmacy, agreed to pay the United States $9.25 million to resolve allegations that it solicited and received kickbacks from pharmaceutical manufacturer Abbott Laboratories in exchange for promoting the drug Depakote for nursing home patients.  PharMerica is headquartered in Louisville, Kentucky.

Skilled nursing homes and rehabilitation facilities have also been fertile ground for civil fraud and false claims actions.  In the largest failure of care settlement with a skilled nursing home chain in the department’s history, Extendicare Health Services Inc. and its subsidiary, Progressive Step Corporation, agreed to pay the United States $32.3 million to resolve allegations that Extendicare billed Medicare and Medicaid for deficient nursing services and billed Medicare for medically unreasonable and unnecessary rehabilitation therapy services.  Extendicare and Pro-Step paid an additional $5.7 million to eight states for their Medicaid losses.  The department has ongoing litigation against additional nursing home chains and rehabilitation centers based on similar allegations of false claims for medically unreasonable or unnecessary rehabilitation therapy.  For example, see HCR ManorCare.

Housing and Mortgage Fraud

The department has recovered over $5 billion in housing and mortgage fraud from January 2009 to the end of fiscal year 2015, including this past year’s recoveries of $365 million.  Notable recoveries this past year include a $212.5 million settlement with First Tennessee Bank N.A.  First Tennessee admitted that from 2006 to 2008, through its subsidiary, First Horizon Home Loans Corporation, it originated and endorsed mortgages for federal insurance by the Federal Housing Administration (FHA) that did not meet eligibility requirements.  First Tennessee also admitted failing to report such deficiencies to the authorities as required under the program despite widespread knowledge by its senior managers by early 2008.  In August 2008, First Tennessee sold First Horizon to MetLife Bank N.A., a wholly-owned subsidiary of MetLife Inc.  Metlife admitted similar misconduct regarding the loans it originated and endorsed from September 2008 to March 2012.  MetLife paid the United States $123.5 million to resolve liability under the False Claims Act arising from its misconduct in endorsing mortgagees for FHA insurance.

The department also settled claims against Walter Investment Management Corp. for $29.63 million.  The government alleged that the company, through subsidiaries Reverse Mortgage Solution Inc., REO Management Solutions LLC, and RMS Asset Management Solutions LLC, caused false claims for fees and other costs in servicing reverse mortgages under the Department of Housing and Urban Development’s (HUD’s) Home Equity Conversion Mortgages (HECM) program.  Reverse mortgage loans allow elderly people to access the equity in their homes.  The loans provide monthly payments that enable the elderly to meet their day-to-day living expenses while remaining in their homes.  To encourage these loans, HUD insures banks and other institutions that service the mortgages against loss, providing the institution complies with requirements to ensure the quality of such loans.  Walter Investment allegedly failed to comply with these requirements.

These recoveries are part of the broader enforcement efforts by President Obama’s Financial Fraud Enforcement Task Force.  President Obama established the interagency task force in 2009, to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes.  The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources.  The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.  For more information about the task force, visit www.stopfraud.gov.

Government Contracts

Government contracts and federal procurement accounted for $1.1 billion in fraud settlements and judgments in fiscal year 2015, bringing procurement fraud totals to nearly $4 billion from January 2009 to the end of the fiscal year.  Significant cases include a $146 million settlement with Supreme Group B.V. and several of its subsidiaries for alleged false claims to the Department of Defense (DoD) for food, water, fuel, and transportation of cargo for American soldiers in Afghanistan.  Supreme Group is based in Dubai, United Arab Emirates (UAE).  In addition, Supreme Group affiliates Supreme Foodservice GmbH, a privately held Swiss company, and Supreme Foodservice FZE, a privately-held UAE company, pleaded guilty to related criminal violations and paid more than $288 million in criminal fines.

In two other defense contract settlements, Lockheed Martin Integrated Systems, a subsidiary of aerospace giant Lockheed Martin Inc., paid $27.5 million and DRS Technical Services Inc. paid $13.7 million to resolve allegations that their employees lacked required job qualifications while the companies charged for the higher level, qualified employees required under contracts with U.S. Army Communication and Electronics Command (CECOM).  The CECOM contracts were designed to give the Army rapid access to products and services for operations in Iraq and Afghanistan.

In a pair of cases involving contracts with the General Services Administration, VMware Inc. and Carahsoft Technology Corporation paid the United States $75.5 million and Iron Mountain Companies paid $44.5 million to settle their respective liability under the False Claims Act.  The government alleged that California-based VMware and Virginia-based Carahsoft misrepresented their commercial sales practices, which resulted in overcharging government agencies for their software products and services sold through GSA’s Multiple Award Schedule.  Similarly, Iron Mountain, a records storage company headquartered in Massachusetts, misrepresented its commercial sales practices to GSA and failed to give certain discounts given to its commercial customers, as required to gain access to the vast federal marketplace available to contractors through the Multiple Award Schedule.

The department settled allegations that private contractor U.S. Investigations Services Inc. (USIS) violated the False Claims Act in performing a contract with the Office of Personnel Management (OPM) to perform background investigations of federal employees and those applying for federal service.  The government alleged that USIS took shortcuts that compromised its contractually-required quality review and that, had the government known, it would not have paid for the services.  USIS agreed to forego at least $30 million in payments legitimately owed to the company to settle the government’s allegations.

Other Fraud Recoveries and Actions

Although health care, mortgage, and government contract fraud dominated fiscal year 2015 recoveries, the department has aggressively pursued fraud wherever it is found in federal programs.  For example, the department recovered $44 million from Fireman’s Fund Insurance Company for alleged fraud under the U.S. Department of Agriculture’s federal crop insurance program.  The United States alleged that Fireman’s Fund knowingly issued federally reinsured crop insurance policies that were ineligible for federal reinsurance.  Specifically, Fireman’s Fund allegedly backdated policies, forged farmers’ signatures, accepted late and altered documents, whited-out dates and signatures, and signed documents after relevant deadlines.  The policies were issued by Fireman’s Fund offices in California, Kansas, Mississippi, North Dakota, Texas, and Washington.

The department also recovered $13 million from Education Affiliates, a for-profit education company based in White Marsh, Maryland, for alleged false claims to the Department of Education for student aid for students whose qualifications for admission were falsified to get them enrolled so they could receive aid which would be paid to the school.  Education Affiliates operates 50 campuses throughout the United States under various trade names.

In other actions, the department filed lawsuits to recover funds disbursed under the Troubled Asset Relief Program (TARP) and payments made under contracts awarded to benefit disadvantaged populations identified under the Small Business Administration’s set-aside programs.  In one action, the department sued the estate and trusts of the late Layton P. Stuart, former owner and president of One Financial Corporation, and its operating subsidiary, One Bank & Trust N.A., both based in Arkansas, alleging that Stuart made misrepresentations to induce the Department of the Treasury to invest TARP funds in One Financial as part of Treasury’s Capital Purchase Program.  The department recently settled with the Stuart estate and trusts for $4 million, but claims remain pending against One Financial Corporation.

In a second action, the department filed suit against Florida-based Air Ideal Inc. and its owner, Kim Amkraut.  The government alleged that Air Ideal and Amkraut falsely certified that the company qualified for preferences given to small businesses located in a Historically Underutilized Business Zone (HUBZone) when Air Ideal’s HUBZone location was no more than a virtual office and its principal place of business was in a non-HUBZone location.  The government further alleged that Air Ideal used its fraudulently-procured HUBZone certification to obtain contracts from the Coast Guard, Army, Army Corps of Engineers, and Department of the Interior that were worth millions of dollars.  The department settled with Air Ideal and Amkraut for $250,000 plus five percent of Air Ideal’s gross revenues for five years.

These suits and settlements illustrate the diversity of cases pursued by the department and the department’s quest to root out fraud and false claims against the government wherever it may be found.

Holding Individuals Accountable    

On Sept. 9, Deputy Attorney General Sally Quillian Yates issued a memorandum on individual accountability for corporate wrongdoing.  This memorandum reinforced the department’s commitment to use the False Claims Act and other civil enforcement tools to deter and redress fraud by individuals as well as corporations.

In addition to those suits involving individuals described above, the department settled or filed suit against individuals in an array of cases.  For example, Two Florida couples agreed to pay the United States $1.137 million collectively, to resolve allegations that they accepted kickbacks in exchange for home health care referrals to A Plus Home Health Care Inc.  The United States previously settled with A Plus, its owner Tracy Nemerofsky, and five other couples that allegedly accepted payments from A Plus.  Dr. Charles Denham, of Laguna Beach, California, paid the United States $1 million to settle allegations that he solicited and accepted kickbacks from CareFusion in return for promoting a CareFusion product and influencing recommendations by the National Quality Forum.  Denham was a patient safety consultant who co-chaired a National Quality Forum Committee. After settling with two cardiovascular testing laboratories for $48.5 million – Health Diagnostics Laboratory Inc. (HDL) and Singulex Inc., the department intervened in three qui tam suits against another laboratory, Berkeley HeartLab Inc., a marketing company, BlueWave Healthcare Consultants Inc. and three individuals – BlueWave’s owners, Floyd Calhoun Dent III and Robert Bradley Johnson and HDL’s co-founder and former chief executive officer, LaTonya Mallory.  The department also intervened in two qui tam suits against Florida cardiologist Dr. Asad Qamar and his practice, the Institute for Cardiovascular Excellence PLLC, alleging that Qamar and his practice billed Medicare for medically unnecessary peripheral artery procedures and interventions and paid kickbacks to patients by waiving Medicare copayments irrespective of financial hardship.  The department also filed a complaint against H. Ted Cain, Julie Cain, Corporate Management Inc. and Stone County Hospital Inc. for false claims for Medicare reimbursement.  The government alleged that Ted and Julie Cain, the hospital and hospital management company owned and controlled by Ted Cain, claimed reimbursement for the hospital’s costs at inflated rates and for ineligible expenses.  These matters are ongoing.

Outside the health care arena, EDF Resource Capital Inc. agreed to transfer assets worth $5.8 million to the United States, and its chief executive officer, Frank Dinsmore, agreed to pay $200,000 to the United States, to settle allegations that they violated the False Claims Act in failing to remit payments to the Small Business Administration under the 504 loan program.  The 504 loan program provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings.  The program operates through local lenders like EDF, who reap benefits from the program in return for shouldering certain financial obligations which Dinsmore and EDF allegedly ignored.  The department also entered settlements with two individuals for evasion of Customs duties owed on imports of aluminum extrusions from the People’s Republic of China (PRC).  Robert Wingfield, the U.S. sales representative of a Chinese manufacturer, and Bill Ma, owner of an ostensible importer, allegedly misrepresented the country of origin of goods to avoid steep antidumping and countervailing duties imposed by the Department of Commerce and collected by U.S. Customs and Border Protection on imports of aluminum extrusions from the PRC to protect domestic manufacturers from unfair foreign pricing practices.  The government previously settled related allegations with four importers, bringing total settlements in the case to $4.6 million, including the $435,000 from Wingfield and Ma.

Recoveries in Whistleblower Suits

Of the $3.5 billion the government recovered in fiscal year 2015, more than $2.8 billion related to lawsuits filed under the qui tam provisions of the False Claims Act.  During the same period, the government paid out $597 million to the individuals who exposed fraud and false claims by filing a qui tam complaint, often at great risk to their careers.

The number of lawsuits filed under the qui tam provisions of the Act has grown significantly since 1986, with 638 qui tam suits filed this past year.  The growing number of qui tam lawsuits, particularly since 2009, has led to increased recoveries.  From January 2009 to the end of fiscal year 2015, the government recovered $19.4 billion in settlements and judgments related to qui tam suits and paid whistleblower awards of $3 billion during the same period.

“Many of the recoveries obtained under the False Claims Act result from courageous men and women who come forward to blow the whistle on fraud they are often uniquely positioned to expose,” said Principal Deputy Assistant Attorney General Mizer.

In 1986, Senator Charles Grassley and Representative Howard Berman led successful efforts in Congress to amend the False Claims Act to, among other things, encourage whistleblowers to come forward with allegations of fraud.  In 2009, Senator Patrick J. Leahy, along with Senator Grassley and Representative Berman, championed the Fraud Enforcement and Recovery Act of 2009, which made additional improvements to the False Claims Act and other fraud statutes.  And in 2010, the passage of the Affordable Care Act provided additional inducements and protections for whistleblowers and strengthened the provisions of the federal health care Anti-Kickback Statute.

Principal Deputy Assistant Attorney General Mizer also expressed his deep appreciation for the many dedicated public servants who investigated and pursued these cases – the attorneys, investigators, auditors and other agency personnel throughout the Department of Justice’s Civil Division and the U.S. Attorneys’ Offices, as well as the agency Offices of Inspector General and the many federal and state agencies that contributed to the department’s recoveries this past fiscal year.

“The department’s lawyers and staff, together with our law enforcement partners in federal and state governments, work tirelessly and often overcome daunting challenges to achieve these successes on behalf of the taxpayers,” said Principal Deputy Assistant Attorney General Mizer.

The government’s claims in the matters described above are allegations only; except where indicated, there has been no determination of liability.

15-1478
Updated January 8, 2016
© 2010-17 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



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Bank of NY Mellon must face lawsuit over $1.12 billion mortgage loss

Bank of NY Mellon must face lawsuit over $1.12 billion mortgage loss

Reuters-

Bank of New York Mellon Corp must face a lawsuit seeking to hold it liable for causing $1.12 billion of investor losses by failing to properly monitor five trusts backed by toxic residential mortgages, a Manhattan federal judge ruled.

U.S. District Judge Gregory Woods said Belgium’s Royal Park Investments SA/NV may pursue claims that the bank, as trustee for trusts dating from 2005 to 2007, ignored widespread, systemic abuse in how the underlying loans were underwritten and serviced, and failed to require that bad loans be repurchased.

“Indeed,” Woods wrote in his decision on Wednesday, “it would be implausible to assume that somehow all of the mortgage loans underlying the trusts miraculously avoided the pervasive practices of the industry at the time.”

[REUTERS]

 

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Morgan Stanley Agrees to Pay $2.6 Billion Penalty in Connection with Its Sale of Residential Mortgage Backed Securities

Morgan Stanley Agrees to Pay $2.6 Billion Penalty in Connection with Its Sale of Residential Mortgage Backed Securities

FOR IMMEDIATE RELEASE
Thursday, February 11, 2016

Morgan Stanley Agrees to Pay $2.6 Billion Penalty in Connection with Its Sale of Residential Mortgage Backed Securities

The Justice Department today announced that Morgan Stanley will pay a $2.6 billion penalty to resolve claims related to Morgan Stanley’s marketing, sale and issuance of residential mortgage-backed securities (RMBS).  This settlement constitutes the largest component of the set of resolutions with Morgan Stanley entered by members of the RMBS Working Group, which have totaled approximately $5 billion.  As part of the agreement, Morgan Stanley acknowledged in writing that it failed to disclose critical information to prospective investors about the quality of the mortgage loans underlying its RMBS and about its due diligence practices.  Investors, including federally insured financial institutions, suffered billions of dollars in losses from investing in RMBS issued by Morgan Stanley in 2006 and 2007.

“Today’s settlement holds Morgan Stanley appropriately accountable for misleading investors about the subprime mortgage loans underlying the securities it sold,” said Acting Associate Attorney General Stuart F. Delery.  “The Department of Justice will not tolerate those who seek financial gain through deceptive or unfair means, and we will take appropriately aggressive action against financial institutions that knowingly engage in improper investment practices.”

“Those who contributed to the financial crisis of 2008 cannot evade responsibility for their misconduct,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.  “This resolution demonstrates once again that the Financial Institutions Reform, Recovery and Enforcement Act is a powerful weapon for combatting financial fraud and that the department will not hesitate to use it to hold accountable those who violate the law.”

An RMBS is a type of security comprised of a pool of mortgage loans created by banks and other financial institutions.  The expected performance and price of an RMBS is determined by a number of factors, including the characteristics of the borrowers and the value of the properties underlying the RMBS.  Morgan Stanley was one of the institutions that issued RMBS during the period leading up to the economic crisis in 2007 and 2008.

As acknowledged by Morgan Stanley in a detailed statement of facts that is a part of this agreement (and is quoted below), the company made representations to prospective investors about the characteristics of the subprime mortgage loans underlying its RMBS – representations with which it did not comply:

  • In particular, Morgan Stanley told investors that it did not securitize underwater loans (loans that exceeded the value of the property).  However, Morgan Stanley did not disclose to investors that in April 2006 it had expanded its “risk tolerance” in evaluating loans in order to purchase and securitize “everything possible.”  As Morgan Stanley’s manager of valuation due diligence told an employee in 2006, “please do not mention the ‘slightly higher risk tolerance’ in these communications.  We are running under the radar and do not want to document these types of things.”  As a result, Morgan Stanley ignored information – including broker’s price opinions (BPOs), which are estimates of a property’s value from an independent real estate broker – indicating that thousands of securitized loans were underwater, with combined-loan-to-value ratios over 100 percent.  From January 2006 through mid-2007, Morgan Stanley acknowledged that “Morgan Stanley securitized nearly 9,000 loans with BPO values resulting in [combined loan to value] ratios over 100 percent.”

 

  • Morgan Stanley also told investors that it did not securitize loans that failed to meet originators’ guidelines unless those loans had compensating factors.  Morgan Stanley’s offering documents “represented that ‘[the mortgage loans originated or acquired by [the originator] were done so in accordance with the underwriting guidelines established by [the originator]’ but that ‘on a case-by-case-basis, exceptions to the [underwriting guidelines] are made where compensating factors exist.’”  Morgan Stanley has now acknowledged, however, that “Morgan Stanley did not disclose to securitization investors that employees of Morgan Stanley received information that, in certain instances, loans that did not comply with underwriting guidelines and lacked adequate compensating factors . . . were included in the RMBS sold and marketed to investors.”  So, in fact, “Morgan Stanley . . . securitized certain loans that neither comported with the originators’ underwriting guidelines nor had adequate compensating factors.”

 

  • Likewise, “Morgan Stanley also prepared presentation materials . . . that it used in discussions with potential investors that described the due diligence process for reviewing pools of loans prior to securitization,” but “certain of Morgan Stanley’s actual due diligence practices did not conform to the description of the process set forth” in those materials.

 

  • For example, Morgan Stanley obtained BPOs for a percentage of loans in a pool.  Morgan Stanley stated in these presentation materials that it excluded any loan with a BPO value exhibiting an “unacceptable negative variance from the original appraisal,” when in fact “Morgan Stanley never rejected a loan based solely on the BPO results.”

 

  • Through these undisclosed practices, Morgan Stanley increased the percentage of mortgage loans it purchased for its RMBS, notwithstanding its awareness about “deteriorating appraisal quality” and “sloppy underwriting” by the sellers of these loans.  The bank has now acknowledged that “Morgan Stanley was aware of problematic lending practices of the subprime originators from which it purchased mortgage loans.”  However, it “did not increase its credit-and-compliance due diligence samples, in part, because it did not want to harm its relationship with its largest subprime originators.” Indeed, Morgan Stanley’s manager of credit-and-compliance due diligence was admonished to “stop fighting and begin recognizing the point that we need monthly volume from our biggest trading partners and that . . . the client [an originator] does not have to sell to Morgan Stanley.”

“In today’s agreement, Morgan Stanley acknowledges it sold billions of dollars in subprime RMBS certificates in 2006 and 2007 while making false promises about the mortgage loans backing those certificates,” said Acting U.S. Attorney Brian J. Stretch of the Northern District of California.  “Morgan Stanley touted the quality of the lenders with which it did business and the due diligence process it used to screen out bad loans.  All the while, Morgan Stanley knew that in reality, many of the loans backing its securities were toxic.  Abuses in the mortgage-backed securities industry such as these helped bring about the most devastating financial crisis in our lifetime.  Our office is committed to dedicating the resources necessary to hold those who engage in such reckless actions responsible for their conduct.”

The $2.6 billion civil monetary penalty resolves claims under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA).  FIRREA authorizes the federal government to impose civil penalties against financial institutions that violate various predicate offenses, including wire and mail fraud.  The settlement expressly preserves the government’s ability to bring criminal charges against Morgan Stanley, and likewise does not release any individuals from potential criminal or civil liability.  In addition, as part of the settlement, Morgan Stanley promised to cooperate fully with any ongoing investigations related to the conduct covered by the agreement.

In conjunction with today’s announcement of the federal government’s settlement with Morgan Stanley, the states of New York and Illinois – also members of the RMBS Working Group – have announced settlements with Morgan Stanley for $550 million and $22.5 million, respectively, arising from its sale of RMBS.  Among other resolutions, Morgan Stanley previously paid $225 million to  resolve claims brought by the National Credit Union Administration arising from losses related to corporate credit unions’ purchases of RMBS; $1.25 billion to resolve claims by Federal Housing Finance Agency (FHFA) for Morgan Stanley’s alleged violations of federal and state securities laws and common law fraud in connection with RMBS purchased by Fannie Mae and Freddie Mac; and $86.95 million to resolve federal and state securities laws claims brought by the Federal Deposit Insurance Corporation as receiver on behalf of failed financial institutions.  Morgan Stanley also previously entered into a consent decree with the U.S. Securities and Exchange Commission (SEC) to pay $275 million to resolve certain RMBS claims.  With today’s announcement, Morgan Stanley will have paid nearly $5 billion to members of the RMBS Working Group in connection with its sale of RMBS.

Today’s settlement is part of the ongoing efforts of President Obama’s Financial Fraud Enforcement Task Force’s RMBS Working Group, which has recovered billions of dollars arising from misconduct related to the financial crisis.  The RMBS Working Group is a federal and state law enforcement effort focused on investigating fraud and abuse in the RMBS market that helped lead to the 2008 financial crisis.  The RMBS Working Group brings together attorneys, investigators, analysts and staff from multiple state and federal agencies, including the Department of Justice, U.S. Attorneys’ Offices, the FBI, the SEC, the Department of Housing and Urban Development (HUD), HUD’s Office of Inspector General, the FHFA Office of Inspector General (OIG), the Office of the Special Inspector General for the Troubled Asset Relief Program, the Federal Reserve Board’s OIG, the Recovery Accountability and Transparency Board, the Financial Crimes Enforcement Network and multiple state Attorneys General offices around the country.  The RMBS Working Group is led by Director Joshua Wilkenfeld and five co-chairs: Principal Deputy Assistant Attorney General Benjamin C. Mizer of the Justice Department’s Civil Division, Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, Director Andrew Ceresney of the SEC’s Division of Enforcement, U.S. Attorney John Walsh of the District of Colorado and New York Attorney General Eric Schneiderman.

“The securitization of defective mortgages and the billions of dollars that were lost as a result caused such a hardship to our economy, the housing industry and our nation as a whole that we are still feeling the effects years after,” said Deputy Inspector General for Investigations Rene Febles of FHFA-OIG.  “Morgan Stanley is responsible for their role, which caused enormous losses to investors.  This settlement is one step in recovering from those losses.  We are proud to work with the RMBS Working Group and the U.S. Department of Justice on this and all RMBS matters.”

The settlement was the result of a coordinated effort between the Civil Division’s Commercial Litigation Branch and the U.S. Attorney’s Office of the Northern District of California, with investigative support from FHFA-OIG.

Learn more about the RMBS Working Group and the Financial Fraud Enforcement Task Force at: www.stopfraud.gov

16-170
Updated February 11, 2016
Source: doj.gov
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Wells Fargo to Pay $1.2 Billion in Mortgage Settlement

Wells Fargo to Pay $1.2 Billion in Mortgage Settlement

What about the homeowners who were equally screwed??

NYT-

Wells Fargo has agreed to pay $1.2 billion to put to rest claims that it engaged in reckless lending under a Federal Housing Administration program that left a government insurance fund to clean up the mess.

The bank, which is the nation’s largest mortgage lender, has been in talks with the government since 2012 over accusations that it improperly classified some F.H.A. loans as qualifying for federal insurance when they did not, and that it knew of the misclassification but failed to inform housing regulators about the deficiencies before filing insurance claims.

Wells Fargo, based in San Francisco, had been a holdout among large lenders. Citigroup, Bank of America and JPMorgan Chase all previously settled similar claims.

[NEW YORK TIMES]

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Goldman Sachs to pay $5 billion in mortgage settlement

Goldman Sachs to pay $5 billion in mortgage settlement

AP-

Goldman Sachs said Thursday it had reached a roughly $5 billion settlement as part of a federal and state probe into its role in the sale of mortgages in the years leading up into the housing bubble and subsequent financial crisis.

It is by far the largest settlement the investment bank has reached related to its role in the crisis, but the payment dwarfs the payments made by some of its Wall Street counterparts.

Goldman will pay $2.39 billion in civil monetary penalties, $875 million in cash payments and provide $1.8 billion in consumer relief in the form of mortgage forgiveness and refinancing as part of the agreement. The U.S. Department of Justice, the attorneys general of Illinois and New York and other regulators who are part of the settlement have not officially signed off on the deal, which could take some time.

[AP]

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Pimco, others sue Citigroup over billions in mortgage debt losses

Pimco, others sue Citigroup over billions in mortgage debt losses

REUTERS-

Pacific Investment Management Co and other investors have sued Citigroup Inc over the bank’s alleged failure to properly monitor toxic securities backed by more than $13.8 billion of mortgage loans, resulting in $2.3 billion of losses.

According to a complaint filed Tuesday night in a New York state court in Manhattan, Citigroup breached its duties as trustee for the 25 private-label trusts dating from 2004 to 2007 by ignoring “pervasive and systemic deficiencies” in how the underlying loans were underwritten or being serviced.

The investors said Citigroup looked askance at the loans’ “abysmal performance” out of fear it might “jeopardize its close business relationships” with loan servicers including Wells Fargo & Co and JPMorgan Chase & Co, or prompt them to retaliate over its own problem loans.

Read more at Reuters http://www.reuters.com/article/2015/11/25/us-citigroup-pimco-lawsuit-idUSKBN0TE2MC20151125#0ZRYzAJDKTxDW2J5.99

 

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re: REMIC Sec. 860A-860G | The Internal Revenue Service approved Bank of America’s $8.5 billion settlement for mortgage-backed securities purchased from Countrywide

re: REMIC Sec. 860A-860G | The Internal Revenue Service approved Bank of America’s $8.5 billion settlement for mortgage-backed securities purchased from Countrywide

h/t refinblog

Dated: October 13, 2015

Ladies and Gentlemen:

This Notice is given by The Bank of New York Mellon (the “Trustee”), as trustee or indenture trustee under the Pooling and Servicing Agreements and Indentures and related Sales and Servicing Agreements (collectively, the “Governing Agreements”) governing the Settlement Trusts. The purpose of this Notice is to inform the beneficial owners of the Subject Securities and other persons potentially interested in the Settlement Trusts that the requirements of Subparagraphs 2(e) and 2(f) of the Settlement Agreement have been satisfied in full on October 5, 2015 and October 13, 2015, respectively, and that therefore the “Approval Date” under the Settlement Agreement has occurred on October 13, 2015.

Subparagraph 2(e) of the Settlement Agreement conditions Final Court Approval on the receipt of certain private letter ruling(s) from the Internal Revenue Service (“IRS”) with respect to the Settlement Trusts and provides that the Trustee shall cause the submission of a request for such private letter ruling(s) to the IRS and use reasonable best efforts to pursue such request. Subparagraph 2(f) of the Settlement Agreement conditions Final Court Approval on the receipt, at the Trustee’s request, of an opinion of Trustee tax counsel with respect to certain states concerning the same matters that would be covered by the requested private letter ruling(s).

In a prior informational notice, dated June 29, 2015 (the “June 2015 Informational
Notice”), the Trustee informed the beneficial owners of the Subject Securities and other persons
potentially interested in the Settlement Trusts that on April 8, 2015, the Trustee submitted to the
IRS a request for private letter ruling(s) under Sections 860A-860G of the Internal Revenue
Code of 1986, as amended (the “Code”) with respect to the Settlement Agreement (the “Private
Ruling Request”). The Trustee further informed the beneficial owners of the Subject Securities
and other persons potentially interested in the Settlement Trusts that the Trustee expected
delivery of the opinions contemplated under Subparagraph 2(f) of the Settlement Agreement
shortly after the issuance by the IRS of the private letter ruling(s) requested in the Private Ruling
Request.

The Trustee hereby provides notice that on October 5, 2015, Trustee’s tax counsel
received, on behalf of Trustee, a private letter ruling from the IRS (PLR-113051-15) that
satisfies the requirements of Subparagraph 2(e) of the Settlement Agreement in all respects (the
“Private Letter Ruling”). A copy of the Private Letter Ruling is attached as Exhibit B hereto.
The Trustee hereby provides further notice that on October 13, 2015, the Trustee
received opinions from Trustee tax counsel (the “Tax Opinions”) that satisfy the requirements
of Subparagraph 2(f) of the Settlement Agreement in all respects.

As a result of the foregoing, the “Approval Date” under the Settlement Agreement has
occurred on October 13, 2015. Accordingly, among other things, (i) the servicing improvements
set out in Subparagraph 5(c) of the Settlement Agreement and the reporting and attestation
obligations set out in Subparagraph 5(f) of the Settlement Agreement are now in effect; (ii)
pursuant to Subparagraph 3(c)(iv) of the Settlement Agreement, the Expert is required to
calculate the Allocable Share of each Settlement Trust within ninety (90) days of October 13,
2015, and (iii) pursuant to Subparagraph 3(a) of the Settlement Agreement, Bank of America
and/or Countrywide are required to pay the Settlement Payment or cause the Settlement
Payment to be paid in accordance with Subparagraph 3(b) of the Settlement Agreement within
one-hundred and twenty (120) days of October 13, 2015.

The Trustee expects to provide one or more additional informational notices (x) after
the Expert determines the Allocable Share of each Settlement Trust in accordance with
Subparagraph 3(c) of the Settlement Agreement and (y) after Countrywide and/or Bank of
America inform the Trustee of the date on which the Settlement Payment will be paid in
accordance with Subparagraph 3(b) of the Settlement Agreement (at which time the Trustee
expects to also give notice concerning the applicable distribution date on which the Settlement
Trusts’ Allocable Shares will be distributed to Investors in accordance with Subparagraph 3(d)
of the Settlement Agreement).

This Notice is not intended to be and should not be construed as investment, accounting,
financial, legal or tax advice by or on behalf of the Trustee, or its directors, officers, affiliates,
agents, attorneys or employees. Each person receiving this Notice is urged to carefully review
the Notice and should seek the advice of its own advisors in respect of the matters set forth
herein.

If you have any questions regarding this Notice, please contact the Trustee by email at
Questions@cwrmbssettlement.com or by telephone at (866) 294-7876 or (614) 569-0289.

THE BANK OF NEW YORK MELLON, as
Trustee for the Settlement Trusts

[…]

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FDIC vs THE BANK OF NEW YORK MELLON | BNY breached its duties as trustee of 12 RMBS trusts that issued approximately $2 billion in certificates

FDIC vs THE BANK OF NEW YORK MELLON | BNY breached its duties as trustee of 12 RMBS trusts that issued approximately $2 billion in certificates

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

FEDERAL DEPOSIT INSURANCE CORPORATION AS RECEIVER FOR GUARANTY BANK
Plaintiff,

-against-

THE BANK OF NEW YORK MELLON,
Defendant.

NATURE OF ACTION

1. This is an action for damages against BNY Mellon for its breaches of contractual and statutory duties under the governing agreements, the New York Streit Act, N.Y. Real Property Law § 124, et seq. (the “Streit Act”), and under the federal Trust Indenture Act of 1939 (the “TIA”), 15 U.S.C. § 77aaa, et seq.1 as Trustee for 12 securitization trusts (the “Covered Trusts”), identified below, which issued residential mortgage-backed securities (“RMBS”) purchased by investors, including Guaranty Bank (“Guaranty”).

2. This action seeks to hold BNY Mellon accountable for abdicating its fundamental duties as the trustee to certificateholders such as Plaintiff. Under the agreements governing the Covered Trusts, BNY Mellon accepted virtually all of the powers designed to protect the certificateholders and was compensated for that role. BNY Mellon was essentially Plaintiff’s sole source of protection against breaches of the governing agreements by the other parties to those agreements, including the sponsors that sold the loans to the Covered Trusts and the servicers tasked with servicing the mortgage loans. BNY Mellon, however, shirked its duty to exercise its powers to protect Plaintiff and instead attempted to shorn itself of the responsibilities that trusteeship imports. While BNY Mellon stood idly for years, the sponsors kept defective mortgage loans in the Covered Trusts, servicers reaped excessive fees for servicing the defaulted loans from the Covered Trusts, and Plaintiff was left to suffer enormous losses.

3. The Covered Trusts were created to facilitate RMBS transactions sold to investors from 2005 to 2006. Eight of the RMBS transactions were sponsored by Countrywide Home Loans, Inc. (the “Countrywide Trusts”), and four were sponsored by EMC Mortgage Corporation (the “EMC Trusts”) (EMC Mortgage Corporation and Countrywide Home Loans, Inc., are referred to as “Countrywide” and “EMC” respectively, or collectively as the “Sponsors”).

[…]

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PART 2. U.S. banks moved billions of dollars in trades beyond Washington’s reach

PART 2. U.S. banks moved billions of dollars in trades beyond Washington’s reach

Reuters-

This spring, traders and analysts working deep in the global swaps markets began picking up peculiar readings: Hundreds of billions of dollars of trades by U.S. banks had seemingly vanished.

“We saw strange things in the data,” said Chris Barnes, a former swaps trader now with ClarusFT, a London-based data firm.

The vanishing of the trades was little noted outside a circle of specialists. But the implications were big. The missing transactions reflected an effort by some of the largest U.S. banks — including Goldman Sachs, JP Morgan Chase, Citigroup, Bank of America, and Morgan Stanley — to get around new regulations on derivatives enacted in the wake of the financial crisis, say current and former financial regulators.

[REUTERS]

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Bank of NY Mellon sued by U.S. regulator over $2 billion in soured mortgages

Bank of NY Mellon sued by U.S. regulator over $2 billion in soured mortgages

Reuters-

A U.S. regulator sued Bank of New York Mellon Corp (BK.N) on Wednesday over $2.06 billion in residential mortgage-backed securities purchased by a failed Texas bank, and accused it of breaching its duties as bond trustee to protect investors.

In a complaint filed in Manhattan federal court, the Federal Deposit Insurance Corp, which sued in its capacity as receiver for the former Guaranty Bank, said it suffered more than $440 million in losses when it sold the securities in March 2010.

The FDIC filed a similar lawsuit against US Bancorp (USB.N), another major bond trustee, over more than $248 million of mortgage debt bought by Guaranty, and resulting in “significant” losses when those securities were sold.

[REUTERS]

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Goldman Sachs Group CEO Lloyd Blankfein Is NOW a Billionaire

Goldman Sachs Group CEO Lloyd Blankfein Is NOW a Billionaire

He has a special thanks to give to the Obama Administration.


Bloomberg-

Goldman Sachs Group Inc. made hundreds of partners rich when it went public in 1999. Its performance since then has turned Lloyd Blankfein into a billionaire.

The chief executive officer of the Wall Street bank for the past nine years, Blankfein has seen his net worth surge to about $1.1 billion as the firm’s shares quadrupled since the initial public offering, according to the Bloomberg Billionaires Index. As the largest individual owner of Goldman Sachs stock, he has a stake in the company worth almost $500 million. Real estate and an investment portfolio seeded by cash bonuses and distributions from the bank’s private-equity funds add more than $600 million.

For Blankfein, the son of a New York postal worker, the accumulation of wealth has been dramatic. He’s one of the few current leaders of a big global bank who reached a senior-executive rank before his firm went public. That won’t happen again anytime soon, as Goldman Sachs was the last major Wall Street firm to end its private partnership.

 [BLOOMBERG]

image: Reuters

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HSBC must face U.S. lawsuits over $34 billion mortgage debt losses

HSBC must face U.S. lawsuits over $34 billion mortgage debt losses

Reuters-

HSBC Holdings Plc (HSBA.L) was on Monday ordered to face three U.S. lawsuits accusing it of breaching its duties as a trustee overseeing residential mortgage-backed securities that suffered more than $34 billion of losses in the global financial crisis.

U.S. District Judge Shira Scheindlin in Manhattan said the plaintiff investors, including funds from BlackRock Inc (BLK.N), Allianz SE’s (ALVG.DE) Pacific Investment Management Co and TIAA-CREF, could pursue claims accusing HSBC of breach of contract, and concealing known defects in mortgage loans backing 283 trusts.

“Based on plaintiffs’ detailed allegations, it is indeed plausible to infer that HSBC had actual knowledge of breaches in representations and warranties in the specific loans at issue,” Scheindlin wrote in a 53-page decision. “How HSBC gained this actual knowledge, or whether in fact it had actual knowledge, may be determined through discovery.”

The judge also said the plaintiffs could pursue a conflict of interest claim accusing HSBC of refusing to “rat out” misconduct by loan servicers, hoping that they would “return the favour when the roles were reversed.”

[REUTERS]

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The $265 Billion Wave That’s About to Crush Homeowners

The $265 Billion Wave That’s About to Crush Homeowners

Credit-

Millions of consumers will have to absorb a major hit to their household budget in the coming months. About $265 billion in home equity lines of credit (HELOCs) will enter the repayment period in the next few years, according to a study from Experian, and consumers may see their monthly payments spike — in some cases, triple or quadruple what they previously paid.

HELOC originations soared from 2005 up until the start of the housing crisis, and because many HELOCs enter the repayment phase after 10 years, these billions of dollars in outstanding credit balances are just now coming due. This wave of HELOC resets is expected to significantly stress borrowers’ finances and the lending industry.

“This analysis is critical as we want to not only help lenders prepare and understand the payment stress of their borrowers, but also give consumers an opportunity to understand what the impact may be to their financial status and how to be better prepared for it,” said Michele Raneri, Experian’s vice president of analytics and business development, in a statement about the study.

[CREDIT.com]

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Five global banks to pay $5.7 billion in fines over rate rigging

Five global banks to pay $5.7 billion in fines over rate rigging

Sex on the beach….15 yrs!

Continue to destroy the planet….0 yrs!!

 

Reuters-

Five of the world’s largest banks, including JPMorgan Chase & Co and Citigroup Inc, were fined roughly $5.7 billion, and four of them pleaded guilty to U.S. criminal charges over manipulation of foreign exchange rates, authorities said on Wednesday.

A fifth bank, UBS AG, will plead guilty to rigging benchmark interest rates, the U.S. Justice Department said.

U.S. banks JPMorgan Chase and Citigroup will pay $550 million and $925 million in criminal fines, respectively, as part of their guilty pleas.

[REUTERS]

 

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JPMorgan to Buy $45 Billion of Ocwen’s Loan-Servicing Rights

JPMorgan to Buy $45 Billion of Ocwen’s Loan-Servicing Rights

Just going to blow right up in their faces AGAIN and I betcha the taxpayers are going to get the bill.

 

Bloomberg-

JPMorgan Chase & Co., the second-biggest servicer of U.S. mortgages, agreed to buy the right to manage about $45 billion in home loans from Ocwen Financial Corp. starting June 1.

The deal involves servicing rights for 266,000 mortgages owned by Fannie Mae, the New York-based bank said Thursday in a statement that didn’t disclose terms. Bloomberg reported in March that JPMorgan was acquiring the rights.

The agreement will bring JPMorgan’s portfolio for overseeing billing, collections and foreclosures on U.S. mortgages to about $1 trillion, a threshold last exceeded in the fourth quarter of 2013. Its $948.8 billion loan-servicing portfolio as of Dec. 31 trailed only Wells Fargo & Co.’s $1.75 trillion, according to data compiled by Bloomberg.

[BLOOMBERG]

image: Reuters

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NYDFS ANNOUNCES DEUTSCHE BANK TO PAY $2.5 BILLION, TERMINATE AND BAN INDIVIDUAL EMPLOYEES, INSTALL INDEPENDENT MONITOR FOR INTEREST RATE MANIPULATION

NYDFS ANNOUNCES DEUTSCHE BANK TO PAY $2.5 BILLION, TERMINATE AND BAN INDIVIDUAL EMPLOYEES, INSTALL INDEPENDENT MONITOR FOR INTEREST RATE MANIPULATION

April 23, 2015

Contact: Matt Anderson, 212-709-1691

NYDFS ANNOUNCES DEUTSCHE BANK TO PAY $2.5 BILLION, TERMINATE AND BAN INDIVIDUAL EMPLOYEES, INSTALL INDEPENDENT MONITOR FOR INTEREST RATE MANIPULATION

Widespread Effort by Bank Employees to Manipulate Benchmark Interest Rate Submissions for LIBOR, EURIBOR, TIBOR

Deutsche Bank Employee: This “is a corrupt fixing and DB is part of it!”

Deutsche Bank Employee Seeking to Obtain Lower Rate: “I’m begging u, don’t forget me… pleassssssssssssssseeeeeeeeee… I’m on my knees…”

Benjamin M. Lawsky, Superintendent of Financial Services, announced today that Deutsche Bank will pay $2.5 billion, terminate and ban individual employees who engaged in misconduct, and install an independent monitor for New York Banking Law violations in connection with the manipulation of the benchmark interest rates, including the London Interbank Offered Bank (“LIBOR”), the Euro Interbank Offered Rate (“EURIBOR”) and Euroyen Tokyo Interbank Offered Rate (“TIBOR”) (collectively, “IBOR”).

The overall $2.5 billion penalty Deutsche Bank will pay includes $600 million to the New York State Department of Financial Services (NYDFS), $800 million to the Commodities Futures Trading Commission (CFTC), $775 million to the U.S. Department of Justice (DOJ), and 227 million GBP (approximately $340 million) to the United Kingdom’s Financial Conduct Authority (FCA).

Superintendent Lawsky said: “Deutsche Bank employees engaged in a widespread effort to manipulate benchmark interest rates for financial gain. While a number of the employees involved in misconduct have already left the bank, those that remain are being terminated or banned from the New York banking system. We must remember that markets do not just manipulate themselves: It takes deliberate wrongdoing by individuals.”

The London Interbank Offered Rate (“LIBOR”) is a benchmark interest rate used in financial markets around the world.  It is the primary benchmark for short term interest rates globally, written into standard derivative and loan documentation, used for a range of retail products, such as mortgages and student loans, and the basis for settlement of interest rate contracts on many of the world’s major futures and options exchanges.  It is also used as a barometer to measure the health of the banking system and as a gauge of market expectation for future central bank interest rates.

From approximately 2005 through 2009, certain Deutsche Bank traders frequently requested that certain submitters submit rate contributions that would benefit the traders’ trading positions, rather than the rates that complied with the IBOR definitions. For example, on February 21, 2005, a trader requested of another trader who performed submitter duties on a back-up basis, “can we have a high 6mth libor today pls gezzer?”  The trader/submitter agreed, “sure dude, where wld you like it mate ?”  The trader replied, “think it shud be 095?”  The trader/submitter replied, “cool, was going 9, so 9.5 it is.”  The trader joked, “super – don’t get that level of flexibility when [the usual submitter] is in the chair fyg!” Similarly, on December 29, 2006, a trader wrote to a submitter, “Come on 32 on 1. Mth… Cu my frd.”  The submitter agreed, “ok will try to give you a belated Christmas present…!”

Deutsche Bank also communicated and coordinated with employees of other banks and financial institutions regarding their respective rate contributions in advance of an IBOR submission. On September 7, 2006, a London desk head attempted to obtain a low EURIBOR submission from an external banker at Barclays, “I’m begging u, don’t forget me… pleassssssssssssssseeeeeeeeee… I’m on my knees…”  The external banker replied, “I told them 1 m up is that right?”  The London desk head continued, “please pal, insist as much as you can… my treasury is taking it to the sky… we have to counter balance it… I’m beggin u… can u beg the [a panel bank] guy as well?”   The external banker agreed, “ok, I’m telling him.”

As a bank’s IBOR rates are intended to correspond to the cost at which the bank concludes it can borrow funds, the rates are an indicator of a bank’s financial health.  If a bank’s submission is high, it suggests that the bank is, or would, pay a high amount to borrow funds.  This could indicate a liquidity problem and, thus, that the bank is experiencing financial difficulty.

Traders and submitters at Deutsche Bank were aware that the IBOR rates did not accurately reflect their definitions.  On August 21, 2008, a vice president wrote to an external banker employed at Merrill Lynch, “tibor going down or not?”  The external banker replied, “tibor will go down slightly but not much… euroyen tibor isn’t really reflective of actual money market condition in japan… people just randomly make those numbers up… pretty much like libors tho!”

On July 16, 2009, a managing director and the Head of the London Money Market Derivatives desk discussed the strength and accuracy of the Euro LIBOR panel in comparison to the EURIBOR panel.  The managing director asked, “u think the quality of the euro-libor panel is 4.5bps better than euribor?”  The Head of the London Money Market Derivatives desk responded yes, and the managing director replied, “not so sure, i have a hard time to believe if so many banks say they can better than the market while they are a part of it.”  The Head of the London Money Market Derivatives desk stated, “theyre all lying anyway.”  The managing director replied, “there is a philosophical saying: ‘one greek says: “all greeks are lying” who do u trust?”

On September 4, 2009, a vice president wrote to a trader regarding LIBOR and TIBOR, stating, “am purring 34 for 3m libor and I think am far too high… JPM [JP Morgan Chase] is putting 41 for tibor… I do not understand how come we can have 3m tibor/cash at 56 at DB… DB is the among the lowest libor contribution in all ccys… UBS is corrup/manipulator in tibor fixing… i think putting such a high tibor damage the reputation of deutsche bank… Second, It is not because all the tibors setters are corrupt/manipulators that deutsche bank has to be aswell… It is not because the japanese banks are manipulating the tibor fixing that DB has to do it as well… Tibor is a corrupt fixing and DB is part of it!”

From approximately 2007 through 2009, a number of large international banks were receiving negative press coverage concerning their high and potentially inaccurate LIBOR submissions.  Certain articles questioned particular banks’ liquidity position regarding the high LIBOR submissions and, as a result, the banks’ share prices fell.  Various Deutsche Bank senior managers circulated and discussed these articles.

On October 4, 2007, the Head of Short Term Interest Rate Trading in Australia and New Zealand forwarded an article, which reported a rumor that a large European bank was struggling for financing, including to senior management, commenting on the instability of the market, specifically in regards to bank illiquidity, and commented, “This market has the feel that we are about to have another run and panic on funding in my opinion just a gut feeling looking at the behavior of LIBORS if we look at the 3mth fix over the lst few days since we have gone over the TURN of the year there has been a bit of pressure… this feels like the period where we were edging up ever so slight back in early august where we fixed at 5.36 for months on end and then started edging up before the panic set in.” Later that day, a group head within the Global Finance and Foreign Exchange Unit forwarded the email to  a London desk head, directing, “Make sure our libors are on the low side for all ccys.”

Terminations and Bans of Individual Deutsche Bank Employees

As a result of the investigation, numerous employees that were involved in the wrongful conduct discussed in this Order, including those in management positions, have been terminated, disciplined or are otherwise no longer employed by the Bank, as a result of their misconduct.

However, certain employees involved in the wrongful conduct remain employed at the Bank.  The Department orders the Bank to take all steps necessary to terminate seven employees, who played a role in the misconduct but who remain employed by the Bank: one London-based Managing Director, four London-based Directors, one London-based Vice President, and one Frankfurt-based Vice President.

Additionally, ten of the individuals centrally involved in the misconduct were previously terminated as a result of the investigation.  Four of these employees were reinstated pursuant to a German Labour Court determination, and two of them remain at the Bank. Those employees that were reinstated due to the German Labour Court decision who remain at the Bank shall not be allowed to hold or assume any duties, responsibilities, or activities involving compliance, IBOR submissions, or any matter relating to U.S. or U.S. Dollar operations.

Superintendent Lawsky thanks the U.S. Department of Justice, the Commodities Futures Trading Commission, and the U.K. Financial Conduct Authority for their work and cooperation in this investigation.

To view a copy of the NYDFS order regarding Deutsche Bank, please visit, link.

###

Source: http://www.dfs.ny.gov

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Nomura, RBS ‘crap’ emails come into play in $1 billion mortgage bond trial

Nomura, RBS ‘crap’ emails come into play in $1 billion mortgage bond trial

Yahoo-

NEW YORK (Reuters) – In 2007, a Royal Bank of Scotland Group Plc employee emailed his boss with his view of a sample of mortgages underlying a bond that the bank was underwriting: “This one is crap.”

Asked about it this week in Manhattan federal court, Brian Farrell, the employee, said he did not recall the deal. But a U.S. regulator cited the email as evidence that Nomura Holdings Incand RBS made false statements about mortgage securities they sold to Fannie Mae and Freddie Mac.

The email and others like it are part of a $1.1 billion lawsuit by the Federal Housing Finance Agency against Nomura and RBS that went to trial this month. The messages add to a litany of arguably embarrassing electronic musings by bank employees that have resurfaced in litigation over the 2008 financial crisis.

[YAHOO]

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Ocwen Financial Intends to Sell Additional $25 Billion Portfolio of Mortgage Servicing Rights to Nationstar

Ocwen Financial Intends to Sell Additional $25 Billion Portfolio of Mortgage Servicing Rights to Nationstar

Source: OCWEN

March 24, 2015

Ocwen Financial Intends to Sell Additional $25 Billion Portfolio of Mortgage Servicing Rights to Nationstar

 

ATLANTA, March 24, 2015 (GLOBE NEWSWIRE) — Ocwen Financial Corporation (NYSE:OCN) announced today that its subsidiary, Ocwen Loan Servicing, LLC (“Ocwen”) and Nationstar Mortgage LLC, an indirectly-held, wholly-owned subsidiary of Nationstar Mortgage Holdings Inc. (NYSE:NSM) (collectively “Nationstar”) have agreed in principle to the sale by Ocwen of residential mortgage servicing rights on a portfolio consisting of approximately 142,000 loans owned by Freddie Mac and Fannie Mae with a total principal balance of approximately $25 billion. Subject to a definitive agreement, approvals by Freddie Mac, Fannie Mae and FHFA and other customary conditions, Ocwen and Nationstar expect the transaction to close before mid-year.

“This transaction, on top of the one announced in February between Ocwen and Nationstar, furthers our announced corporate strategy and demonstrates the strong working relationship we have developed with Nationstar,” said Ron Faris, Chief Executive Officer of Ocwen.

“This transaction builds upon our strong track record of portfolio acquisitions while serving the needs of homeowners, and we look forward to expeditiously closing and boarding this portfolio,” said Jay Bray, Chief Executive Officer of Nationstar. “We will continue to work cooperatively with Ocwen as they evaluate the sale of additional agency portfolios and look forward to continuing discussions with all counterparties.”

About Ocwen Financial Corporation

Ocwen Financial Corporation is a financial services holding company which, through its subsidiaries, is engaged in the servicing and origination of mortgage loans. Ocwen is headquartered in Atlanta, Georgia, with offices throughout the United States and support operations in India and the Philippines. Utilizing proprietary technology, global infrastructure and superior training and processes, Ocwen provides solutions that help homeowners and make our clients’ loans worth more. Ocwen may post information that is important to investors on its website (www.Ocwen.com).

About Nationstar

Based in Dallas, Texas, Nationstar earns fees through the delivery of quality servicing, origination and transaction based services related principally to single-family residences throughout the United States. Additional corporate information is available on the investors tab at www.nationstarmtg.com.

Forward Looking Statements

This news release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Forward-looking statements and involve a number of assumptions, risks and uncertainties that could cause actual results to differ materially.

Important factors that could cause actual results to differ materially from those suggested by the forward-looking statements include, but are not limited to, the following: adverse effects on our business as a result of recent regulatory settlements; reactions to the announcement of such settlements by key counterparties; increased regulatory scrutiny and media attention, due to rumors or otherwise; uncertainty related to claims, litigation and investigations brought by government agencies and private parties regarding our servicing, foreclosure, modification and other practices; any adverse developments in existing legal proceedings or the initiation of new legal proceedings; our ability to effectively manage our regulatory and contractual compliance obligations; the adequacy of our financial resources, including our sources of liquidity and ability to fund and recover advances, repay borrowings and comply with debt covenants; our servicer and credit ratings as well as other actions from various rating agencies, including the impact of recent downgrades of our servicer ratings; volatility in our stock price; the characteristics of our servicing portfolio, including prepayment speeds along with delinquency and advance rates; our ability to contain and reduce our operating costs; our ability to successfully modify delinquent loans, manage foreclosures and sell foreclosed properties; uncertainty related to legislation, regulations, regulatory agency actions, government programs and policies, industry initiatives and evolving best servicing practices; as well as other risks detailed in Ocwens reports and filings with the Securities and Exchange Commission (SEC), including its annual report on Form 10-K/A for the year ended December 31, 2013 (filed with the SEC on 08/18/14) and its quarterly report on Form 10-Q for the quarter ended September 30, 2014 (filed with the SEC on 10/31/14). Anyone wishing to understand Ocwens business should review its SEC filings. Ocwens forward-looking statements speak only as of the date they are made and, except for our ongoing obligations under the U.S. federal securities laws, we undertake no obligation to update or revise forward-looking statements whether as a result of new information, future events or otherwise.

CONTACT: FOR FURTHER INFORMATION CONTACT: Investors: Stephen Swett T: (203) 614-0141 E: shareholderrelations@ocwen.com Media: John Lovallo T: (917) 612-8419 E: jlovallo@levick.com Dan Rene T: (202) 973-1325 E: drene@levick.com
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The Nonprofit Behind Billions in Mortgage Aid Is a Mess

The Nonprofit Behind Billions in Mortgage Aid Is a Mess

Bloomberg-

Hoping to deliver relief to Americans pounded by the financial crisis, the government has poured billions of dollars into a sort of Red Cross for homeowners.

NeighborWorks America, a nonprofit chartered by Congress, distributes much of that money to counseling groups that dispense mortgage advice and sometimes financial aid.

A close look at the group reveals a house in disorder — with sweetheart contracts, document fudging and unexplained departures of top officials.

[BLOOMBERG]

Photographer: Bilyana Dimitrova via Bloomberg

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Ocwen to sell $9.6 billion mortgage servicing rights to Walter unit

Ocwen to sell $9.6 billion mortgage servicing rights to Walter unit

REUTERS-

Ocwen Financial Corp (OCN.N) said it was selling residential mortgage servicing rights worth $9.6 billion to a subsidiary of Walter Investment Management Corp (WAC.N).

The deal is the latest in a series of steps by Ocwen to slim down its operations amid regulatory scrutiny over its business practices.

Ocwen, which delayed filing its full-year results, also said it was reviewing the ability of its affiliate, Home Loan Servicing Solutions Ltd (HLSS.O), to meet obligations to fund new servicing advances.

[REUTERS]

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Nomura, RBS face U.S. mortgage trial; $1 billion damages at stake

Nomura, RBS face U.S. mortgage trial; $1 billion damages at stake

Reuters-

A U.S. housing regulator is set to take two of the world’s biggest banks to trial on Monday to try and recoup more than $1 billion in damages over mortgage bonds sold to government-run mortgage finance companies ahead of the 2008 economic crisis.

Lawyers for the regulator will face off with attorneys of Nomura Holdings Inc (8604.T) and Royal Bank of Scotland Group Plc (RBS.L) in a non-jury trial in Manhattan federal court, one of the few cases spilling out of the financial crisis by the U.S. government to reach trial.

Barring a last-minute settlement, the trial would be the first to result from 18 lawsuits filed in 2011 by the Federal Housing Finance Agency (FHFA) to recover losses on some $200 billion in mortgage-backed securities that various banks sold Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB).

[REUTERS]

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OCWEN | Executes Letter of Intent to sell mortgage servicing rights on $45 billion of performing Agency loans || Form 8-K filing, the Company disclosed the following items related to its fourth quarter results.

OCWEN | Executes Letter of Intent to sell mortgage servicing rights on $45 billion of performing Agency loans || Form 8-K filing, the Company disclosed the following items related to its fourth quarter results.

  • Provides update on fourth quarter 2014 financial results
  • Executes amendment to Senior Secured Term Loan
  • Executes Letter of Intent to sell mortgage servicing rights on $45 billion of performing Agency loans
  • Secures replacement financing on $450 million Servicing Advance facility maturing in June

ATLANTA, March 2, 2015 (GLOBE NEWSWIRE) — Ocwen Financial Corporation, “Ocwen” or the “Company”, (NYSE:OCN), a leading financial services holding company, today reported significant updates about the Company.

As previously disclosed on February 5, 2015 in its Company Update to Stakeholders, Ocwen expects to report a loss for the fourth quarter and 2014 fiscal year.

In that Form 8-K filing, the Company disclosed the following items related to its fourth quarter results.

  • It recorded an additional $50 million expense related to its New York Department of Financial Services Settlement.
  • The Company expects to increase expenses related to uncollectable receivables and other servicing expenses by approximately $64 million. 
  • The Company expects the expense for third party monitoring costs in the fourth quarter of 2014 to be approximately $13 million.

In addition to these previously disclosed items, the Company anticipates that its fourth quarter results will be impacted by the following non-recurring items:

  • A $370 – $420 million non-cash charge to write-off goodwill.
  • The creation of a $15 million reserve relating to its remediation plan to address issues around certain erroneously dated borrower correspondence.

The above financial data is preliminary, based upon the Company’s estimates and subject to completion of the Company’s financial closing procedures. Moreover, this data has been prepared on the basis of currently available information. The Company’s independent registered public accounting firm has not audited or reviewed, and does not express an opinion with respect to, this data. This data does not constitute a comprehensive statement of the Company’s financial results for the year ended December 31, 2014, and the Company’s final numbers for this data may differ materially from these estimates.

Ocwen will file a Form 12b-25 with the U.S. Securities and Exchange Commission for an extension of time enabling the Company to file its 2014 Form 10-K on or before March 17, 2015, without penalty. Ocwen requires this extension to complete its goodwill valuation analysis and its financial closing procedures and to ensure appropriate disclosure of various recent events impacting the Company.

Upon finalizing fourth quarter and full year 2014 results the Company expects to host a call with the investment community.

2015 Other Events and Updates

So far in 2015, the Company has been executing on its previously announced plans to sell certain assets, reduce interest rate risk and further improve liquidity. Steps include:

  • On March 2, 2015 the Company entered into an amendment to its $1.3 billion Senior Secured Term Loan (SSTL) to remove certain restrictions on asset sales and permanently increase a financial covenant. Ocwen has agreed to an accelerated repayment schedule for cash received from asset sales.  

“We are pleased with the actions of our term loan investors. They have been supportive of Ocwen and recognize the importance and benefit of executing on our strategy. Additionally, their willingness to enter into an amendment with Ocwen is an affirmation that the Company is, and always has been, in compliance with all of its SSTL covenants,” said Ronald M. Faris, President and Chief Executive Officer of Ocwen. 

  • The Company signed a letter of intent with a buyer on the sale of mortgage servicing rights (MSRs) on a portfolio consisting of approximately 277,000 performing Agency loans owned by Fannie Mae with a total unpaid principal balance of approximately $45 billion. Subject to a definitive agreement, approvals by Fannie Mae and FHFA and other customary conditions, Ocwen expects the transaction to close by mid-year and the loan servicing to transfer over the course of the second half of 2015.
  • Including its previously announced $9.8 billion MSR sale to Nationstar, Ocwen is on track to sell Agency MSRs relating to approximately $55 billion of unpaid principal balance in the next six months for prices significantly above its estimated carrying value at December 31, 2014. Ocwen currently anticipates that these transactions will generate approximately $550 million of proceeds over the next six months and accelerate Ocwen’s strategy to reduce the size of its Agency servicing portfolio.
  • Ocwen awarded a sale of non-performing and performing loan assets to an undisclosed buyer. The transaction is subject to typical closing conditions, including finalizing due diligence and a definitive agreement. Total proceeds are expected to be approximately $40 million, and the Company expects the transaction to close by the end of March. The book value of the assets is approximately $26 million.
  • On February 27, 2015, the Company entered into an agreement with a global financial institution to provide replacement financing on Ocwen’s $450 million OFSART servicing advance facility should the existing lender seek not to refinance the facility upon its maturity in June 2015. This agreement is subject to definitive documentation and other customary funding conditions.

In its Company Update to Stakeholders on February 5, 2015, Ocwen provided numerous updates on the Company. Below are a number of additional updates:

  • Based on Ocwen’s current engagements with state regulators, the Company is not aware of nor anticipating any material fines, penalties or settlements. Ocwen still expects to resolve two open legacy matters for a total of less than $1 million. Ocwen is not aware of any pending or threatened actions to suspend or revoke any state licenses.
  • Since January 1, 2015, Ocwen has had an average daily cash balance of over $215 million and continues to forecast that it will have sufficient liquidity going forward.
  • Ocwen believes that the SSTL amendment shows that there is no event of default and there has not been any event of default under Ocwen’s SSTL. Ocwen has publicly refuted a number of times the allegations made by a purported noteholder of certain Home Loan Servicing Solutions advance financing notes which admits it is pursuing a strategy of shorting Ocwen’s stock. Ocwen continues to vigorously defend itself against the claims of this short seller.
  • In addition to the $55 billion in transactions noted above, the Company continues to look at additional asset sales and plans to complete other small or large transactions throughout the year.
  • The Company no longer expects to execute its first call rights transaction in the first quarter of 2015, but it still anticipates closing call right transactions in the year. In the near-term, we believe this strategy will still generate positive gains for the Company, although they are likely to be lower than initially forecasted.
  • On February 27, 2015, Ocwen commented on its receipt of two notices that would terminate the Company as the servicer of two private label RMBS trusts relating to 0.07% of Ocwen’s overall servicing portfolio. These two trusts were part of the 119 transactions referenced in the February 5, 2015 Company Update to Stakeholders. We anticipate that these terminations will result in a $0.5 million gain for Ocwen as the recovery of deferred servicing fees will more than offset the loss of the servicing asset. The Company has also learned that the same trustee concluded its voting process for at least one other RMBS trust (of the 119) and in that case, the certificateholders elected to retain Ocwen as the servicer.
  • Ocwen has hired Moelis & Company and Barclays Capital Inc. to support the Company and to advise regarding adjustments to its capital structure, as appropriate. Additionally these advisors are helping the Company explore its strategic options.

About Ocwen Financial Corporation

Ocwen Financial Corporation is a financial services holding company which, through its subsidiaries, is engaged in the servicing and origination of mortgage loans. Ocwen is headquartered in Atlanta, Georgia, with offices throughout the United States and support operations in India and the Philippines. Utilizing proprietary technology, global infrastructure and superior training and processes, Ocwen provides solutions that help homeowners and make our clients’ loans worth more. Ocwen may post information that is important to investors on its website (www.Ocwen.com).

Forward Looking Statements

This news release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Forward-looking statements involve a number of assumptions, risks and uncertainties that could cause actual results to differ materially.

Important factors that could cause actual results to differ materially from those suggested by the forward-looking statements include, but are not limited to, the following: adverse effects on our business as a result of recent regulatory settlements; reactions to the announcement of such settlements by key counterparties; increased regulatory scrutiny and media attention, due to rumors or otherwise; uncertainty related to claims, litigation and investigations brought by government agencies and private parties regarding our servicing, foreclosure, modification and other practices; any adverse developments in existing legal proceedings or the initiation of new legal proceedings; our ability to effectively manage our regulatory and contractual compliance obligations; our ability to execute on our strategy to reduce the size of our Agency servicing portfolio; the adequacy of our financial resources, including our sources of liquidity and ability to fund and recover advances, repay borrowings and comply with debt covenants; our servicer and credit ratings as well as other actions from various rating agencies, including the impact of recent downgrades of our servicer ratings; volatility in our stock price; the characteristics of our servicing portfolio, including prepayment speeds along with delinquency and advance rates; our ability to contain and reduce our operating costs; our ability to successfully modify delinquent loans, manage foreclosures and sell foreclosed properties; uncertainty related to legislation, regulations, regulatory agency actions, government programs and policies, industry initiatives and evolving best servicing practices; as well as other risks detailed in Ocwen’s reports and filings with the Securities and Exchange Commission (SEC), including its annual report on Form 10-K/A for the year ended December 31, 2013 (filed with the SEC on 08/18/14) and its quarterly report on Form 10-Q for the quarter ended September 30, 2014 (filed with the SEC on 10/31/14). Anyone wishing to understand Ocwen’s business should review its SEC filings. Ocwen’s forward-looking statements speak only as of the date they are made and, except for our ongoing obligations under the U.S. federal securities laws, we undertake no obligation to update or revise forward-looking statements whether as a result of new information, future events or otherwise.

Investors: Stephen Swett T: (203) 614-0141 E: Media: Sard Verbinnen & Co Margaret Popper/David Millar T: 212-687-8080

– See more at: http://globenewswire.com/news-release/2015/03/02/711593/10122803/en/Ocwen-Financial-Corporation-Provides-Significant-Updates.html#sthash.LWDjP3Ku.xB2iZil9.dpuf

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