New York State Superintendent of Financial Services, Gentle Ben Lawsky, recently issued a press release that announced a solution to a "major" problem that did not exist.
"In discussions with our Department, Ocwen has agreed to no longer seek gag rules as part of settlement agreements or loan modifications with borrowers,” Benjamin Lawsky, superintendent of Financial Services, said.
“Additionally, the company has stated it will not enforce gag rule provisions in existing agreements. We are gratified that Ocwen worked constructively with us to resolve this matter, and our Department intends to review this issue at other financial institutions,” Lawsky added.
The Chief Investment Officer of Ocwen, John Britti, shed some light on how pervasive this instance of consumer abuse had become.
“Ocwen does not require non-disparagement clauses in mortgage loan modifications in the absence of any borrower legal claims, which is the case in the overwhelming majority of our modifications.”
Britti did note, “In the rare occasion where there is a legal dispute – and these represent only a fraction of one percent of the loans in our portfolio – more often than not we are able to work out an amicable resolution with the borrower. In those cases, we generally request the settling party to agree to refrain from publicly disparaging the company in the future.”
And it is this point that Ocwen is fixing.
“To clarify, Ocwen has never required non-disparagement clauses for mortgage modifications. Our agreement with the DFS deals with the highly unusual situation where there is a legal settlement agreement with a borrower, representing a fraction of one percent of our portfolio," Britti said in a statement on the matter.
Anyone with a shred of understanding of civil business litigation in the United States, and with a scintilla of intellectual honesty, would acknowledge that non-disparagement provisions are common in litigation settlement agreements generally, not merely in litigation that involves residential mortgage loans. I guess that "anyone" would not include Gentle Ben Lawsky. That's not surprising, since, as we've previously noted, his hands-on business and private practice litigation experience is severely lacking. On the other hand, he's got plenty of political and bureaucratic experience, and it's self-evident that he knows as much as his role model, Eliot Spitzer, about issuing press releases full of preening self-promotion.
Unless Ocwen is flat-out lying, Ocwen required non-disparagement provisions only in connection with litigation settlement agreements, where the servicer had been sued by the borrowers and the parties were settling that litigation, a settlement that may involve a loan modification. Again, this is not an unusual provision to include in the settlement of any litigation. Moreover, loan modifications where litigation was involved included only a small percentage of all loan modifications. In all other loan modifications, a non-disparagement provision was not required by Ocwen.
Apparently, Lawsky has succeeded in having Ocwen agree to cease doing something that it was not doing in connection with the overhelming number of loan modifications, and to agree not to enforce existing non-disparagement provisions in the small fraction of loan modifications that involved the settlement of civil litigation, which Ocwen is willing to do because the number of affected loans is inconsequential and it's got bigger problems with Lawsky to address.
Great job, Ben! Of course, to use the term "or" in the phrase "Ocwen has agreed to no longer seek gag rules as part of settlement agreements or loan modifications with borrowers” is more than a tad misleading, since Ocwen wasn't seeking "gag rules" (whatever that means in the context of an agreement between two private parties) in connection with loan modifications unless a settlement agreement was involved. Where's UDAAP when you need it? Oh yes, it doesn't apply to regulators, only to the regulated.