-
Rules enacted last year appear to be steadily forcing banks to exit the mortgage servicing business, transferring such rights to nonbanks. The situation is stoking fears on Capitol Hill and elsewhere that regulators went too far.
March 3 -
Consumers facing mortgage trouble want help and are looking everywhere for it. Paying close attention to where and how homeowners seek information is how the servicing industry will put itself on the fast track to a better reputation.
February 28 -
"Servicers now face compensatory fees, not for mistakes or unreasonable delays, but simply as the cost of doing business," Mortgage Bankers Association President David Stevens says.
February 19
Walter Investment (WAC), in particular, said on its fourth-quarter earnings call it expects to purchase another $25 billion to $50 billion in mortgage servicing rights, on top of the $60 billion it had previously announced last year.
The forecasts are striking in light of recent revelations. Walter's Green Tree Servicing unit faces legal actions from the Federal Trade Commission and the Consumer Financial Protection Bureau for alleged violations of consumer protection laws. Aside from its most recent run-in with New York Department of Financial Services Superintendent Benjamin Lawsky, Ocwen agreed in December to a $2 billion settlement with the state and federal regulators and the CFPB over allegations of mishandled foreclosures and mortgages for thousands of borrowers.
"I don't think these servicers are going to wave the white flag right now," says Warren Kornfeld, a senior vice president at Moody's Investors Service. "They don't know what will happen from the regulatory side, from sellers or from allegations for any defects."
Denmar Dixon, Walter's chief investment officer, cited the high ratings Green Tree has received from Fannie Mae as proof that it is following servicing requirements and helping borrowers.
"We are a four-star-rated servicer for Fannie Mae, so our No. 1 client, who has five or seven people in our shop all day, every day, and gets provided extensive information on everything we do, believes we do a very good job at servicing assets that they've guaranteed," Dixon said.
He chalked up the scrutiny of nonbank servicers to "the maturation of the sector," and predicted the company would "come through this stronger." Added scrutiny, far from hurting nonbank servicers, would provide an increased barrier to entry for any competitors, Dixon said.
Servicers have warned investors that servicing transfers may slow down this year because of the regulatory scrutiny, however.
"It's going to be a slower process from an overall transfer standpoint," Jay Bray, the CEO of Nationstar, said on a conference call. "We're going to have to work even closer with the regulators and continue to educate them on the success we've had in our processes, and we're highly confident that we are focused on the right things throughout that process and that we'll get the necessary approvals. It's clearly going to be a more involved process."
Ocwen, based in Atlanta, is the only nonbank servicer currently subject to the terms of the $25 billion national mortgage settlement signed by the five largest banks and federal and state regulators in 49 states.
"We'll continue to work to get to that zero defect rate from a customer service experience standpoint," said Ron Faris, Ocwen's CEO and president, on its fourth-quarter call. "But there's no doubt that it's a different regulatory environment than it was a number of years ago."
William Erbey, Ocwen's executive chairman, said he would be the "first to admit that we are not perfect and that our industry has a long way to go."
The nonbank servicers are likely to enter settlements with the CFPB that will bring them in line with the five largest banks, several analysts and lawyers say.
"Basically these servicers will be subject to the same kinds of reviews as the banks were under the national mortgage settlement," says Henry J. Coffey, an analyst at Sterne Agee & Leach. "They now have to operate in a zero-defects environment."
Kornfeld at Moody's noted that Ocwen paid just $75 million out of its own pocket in that deal with the CFPB, with the remainder paid by other firms and by private-label investors that took losses on principal writedowns.
Walter said the resolution it is negotiating with the CFPB would also involve an independent monitor, which Kornfeld says would bring "another layer of oversight and that's credit positive."
Nonbank servicers have been aggressive in acquiring servicing rights because large banks have deliberately reduced their exposure due to changing capital rules, increased regulatory scrutiny and the desire to shed noncore customers. But more recently, regulators have been putting the screws to the nonbanks.
The nonbanks say discussions with large banks to transfer servicing rights have not abated. Whether that translates into swift approvals by regulators remains to be seen.
"On the one hand, banks have been through this and they understand and can commiserate," says Kornfeld. "On the other, you do wonder if they really want to put out a transfer and have it get held up and dragged through the process, with negative headlines by association. Will that possibly slow things down? We will see."
Others suggest that past sellers of servicing rights, including Goldman Sachs (GS), Barclays, Bank of America (BAC) and Residential Capital, a former unit of Ally Financial, were motivated sellers. Wells' paused sale of servicing rights on $39 billion of loans to Ocwen was part of a test and would have been one of the bank's first large servicing transfers. Other large banks notably JPMorgan Chase (JPM) have stated that it can be too expensive and risky to manage delinquent loans and they would sell servicing for business reasons.
"Some sellers may elect to sell smaller chunks of servicing rights to a larger swath of buyers," says Larry Platt, a partner at the law firm of K&L Gates in Washington. "There certainly are no legal requirements to size a deal in any particular way, but it may just be an easier way to get deals done in the short term."
