Plaintiffs Aim for Ocwen.(abusive servicing practices)

Suing subprime firms for "predatory" servicing is a growth industry and class-action attorneys appear to have set their sites on a new target: Ocwen Federal FSB of West Palm Beach, Fla.

Several lawsuits have been filed in California accusing the company of abusive and illegal servicing practices. In general, Ocwen is accused of failing to post monthly mortgage payments properly, charging inappropriate late fees, prematurely referring accounts to collections, and forcing homeowners into default as part of a scheme to generate fee income.

The federally chartered thrift disputes all the allegations and says it has taken steps to improve its servicing operation. "We believe the allegations to be baseless and without merit," Ocwen general counsel Paul Koches told Mortgage Servicing News. "And we will be vigorously defending that in court." (Mr. Koches represents the thrift and its parent, Ocwen Financial Corp., which also is based in West Palm Beach.)

The same California attorneys that are after Ocwen also brought claims of abusive servicing practices against Fairbanks Capital Corp., Salt Lakes City, which recently agreed to a $40 million settlement with federal regulators and to pay $15 million to settle several class-action lawsuits.

Once the FTC announced the Fairbanks settlement, it was widely expected that other subprime servicers would face similar scrutiny.

Consumer attorneys believe the incentive system built into subprime servicing encourages companies to generate fees by pushing loans into default, as opposed to arranging workouts when borrowers get into trouble.

"I think Fairbanks took it to the absolute extreme, which is why they got spanked," said Ira Rhinegold, executive director of the National Association of Consumer Advocates. "I don't think Ocwen and some of the others who are engaged in subprime servicing are much better," he added.