Regulators should slow or stop the rapid growth of nonbank mortgage servicers to protect homeowners and ensure the firms can handle the increased business, according to New York’s top financial regulator.
“It is appropriate for regulators, where warranted, to halt the explosive growth in the nonbank mortgage servicing industry before more homeowners get hurt,” Benjamin M. Lawsky, head of New York State’s Department of Financial Services, said today in prepared remarks for the New York Bankers Association Annual Meeting and Economic Forum.
Lawmakers and regulators have been bombarded by complaints from consumers that mortgage firms failed to help them avoid foreclosures, sometimes losing paperwork and charging excessive fees. Earlier this month, Lawksy indefinitely blocked Ocwen Financial Corp. (OCN)’s purchase of mortgage-servicing rights on about $39 billion in loans from Wells Fargo & Co. (WFC)
Ocwen is licensed in New York as a mortgage banker and Lawsky has a monitor at the firm. The regulator halted the transaction amid concern that the firm may struggle to properly service loans, a person briefed on the matter said last week. Ocwen expanded in recent years by buying rights from banks retreating from an almost $10 trillion market.
Ocwen is driven by the “conviction that keeping distressed homeowners in their homes and, whenever possible, helping people avoid foreclosure via sustainable modifications are good for our business, the investors who own the mortgages, homeowners and communities,” Katarina Wenk-Bodenmiller, an outside spokeswoman for Ocwen at Sommerfield Communications Inc., said in an e-mailed statement.
Since the beginning of the crisis, Ocwen has helped more than 250,000 families avoid foreclosure, she said.
Mortgage servicers handle billing and collections on behalf of lenders or investors who own the loans, and oversee foreclosures when borrowers default. Banks have been selling the rights to reduce their risks in line with new regulations.
Among the buyers have been Ocwen, Nationstar Mortgage Holdings Inc. (NSM) and Walter Investment Management Corp. (WAC) None of the three is New York-based, with Ocwen in Atlanta, NationStar in Lewisville, Texas and Walter in Tampa, Florida. Officials at NationStar and Walter didn’t immediately respond to requests for comment.
Ocwen serviced about $455 billion in loans at the end of 2013, up from about $122 billion in 2012, according to Inside Mortgage Finance, an industry publication. Nationstar serviced $415 billion at year-end, up from $200 billion, and Walter held the rights on $195 billion in mortgages, up from $76 billion, the data show.
Lawsky said independent mortgage servicers are getting “too big, too fast” as the nation’s biggest banks sell servicing rights. Lawsky said he favors “special scrutiny” of how firms can achieve promised cost savings of as much as 70 percent without cutting corners.
“Regulators have to ask whether the purported efficiencies at nonbank mortgage servicers are too good to be true,” he said, citing firms that can’t keep track of cases, unexplained fees and avoidable foreclosures. “It’s something you should expect to hear more about from us in the weeks and months ahead.”
To contact the editor responsible for this story: Peter Eichenbaum at firstname.lastname@example.org