Ranjan and Gita Chhibber said they failed in their year-long effort to save their Ashburn, Virginia, home because of forces beyond the couple's control -- a $1.3 billion mortgage deal between Bank of America Corp. (BAC) and Nationstar Mortgage Holdings Inc. (NSM)
After the Chhibbers lost a small business and a chunk of their income in 2013, they spent three months working with Bank of America to modify their loan. Before it was done, the bank sold their mortgage last year to Nationstar, a nonbank servicer that has tripled in size in two years. That’s when the modification went off the rails, Gita said.
“It’s a shame it has come to this,” said Chhibber, a 58-year-old mother of four, as she packed boxes the evening before moving out of her red-brick home. “Every time I called Nationstar, they told me something different. They couldn’t find my paperwork, they couldn’t get answers to my questions, and they couldn’t tell me what the fees were that they were adding to my mortgage.”
The Chhibbers are among more than five million borrowers who have been bounced from banks to nonbanks in the past two years. As nonbank servicers rapidly grow from the purchase of home loans, some firms are billing customers incorrectly, losing paperwork and failing to honor approved modifications, according to a Consumer Financial Protection Bureau statement in August. The bureau detailed new rules for mortgage transfers last month as part of its ongoing oversight of nonbanks.
John Hoffmann, a spokesman for Nationstar, the second-largest nonbank servicer, said he couldn’t discuss the reason the Chhibbers’ modification was declined. He said since there was not a modification in place when Nationstar took over the loan, the company had to start the process from the beginning. He also said no paperwork was lost.
The CFPB in January enacted regulations that extended rules for banks, many stemming from legal settlements in 2012, to nonbank servicers. These firms collect mortgage payments and handle modifications and foreclosures. One of the rules bans servicers from requiring modification applicants to begin the process all over again after a loan transfer, said Sam Gilford, a CFPB spokesman.
“Regulators never anticipated their servicing rules would be dodged by banks simply by selling off their mortgage servicing business to a shadow sector of nonbank companies,” said Karen Shaw Petrou, managing partner of Federal Financial Analytics, a research firm in Washington. “The huge shift in the past two years shows clearly which way the business is heading.”
The CFPB last month issued guidance on the new regulations that specifies how loan transfers to nonbanks should be handled. They include a provision that sellers and buyers must hold meetings in a timely fashion to discuss the continuity of service before mortgages are handed over. The CFPB also said that sale contracts must mandate that mortgage documents will be sent to the new servicer. More rules governing nonbanks may be coming, the bureau said.
“I can only assume these oversights occur if the CFPB feels it needs to go to the extent of spelling out those details,” said Douglas Harter, a director and servicing analyst at Credit Suisse Group in New York. “They are clearly concerned about the business moving from a heavily regulated industry -- banking -- to a less regulated industry.”
Nationstar Chief Executive Officer Jay Bray said on a conference call with analysts last month that the company has always worked with regulators.
“We think we have a common goal,” said Bray. “Ultimately we want no complaints and all happy customers. They want no complaints and all happy customers.”
Ocwen Financial Corp., the largest nonbank servicer, said it also is aligned with regulators.
“We have a proven track record of reducing delinquencies in servicing portfolios transferred to us and implementing foreclosure alternatives that represent a win for all parties involved,” said David Millar, an Ocwen spokesman.
Banks are unloading mortgage servicing rights as an international agreement known as Basel III phases out their value for meeting capital requirements. The nation’s top 14 bank servicers, including Bank of America, Wells Fargo & Co. and JPMorgan Chase & Co., have sold more than $1 trillion of mortgage servicing rights since the beginning of 2012, according to regulatory filings.
Nonbank servicers are the primary buyers. In 2008, they handled only one in every 50 U.S. mortgages. Now it’s one in seven.
Gita Chhibber, the former homeowner, said she contacted Bank of America in early 2013 after a drop of income made it impossible to make full mortgage payments. In the middle of the modification process, she said, Lewisville-Texas-based Nationstar bought the servicing rights on her loan.
Chhibber, who reapplied for a modification with Nationstar, said the decision-making was so slow that she had to resubmit documents, which were valid for 90 days, several times. She said a Nationstar representative told her in April that the modification was approved with terms that included an initial payment of $6,713 and monthly installments of $1,853 for the next three years that jumped to $3,100 after that.
She said Nationstar recanted its offer 10 days after making it. The reason: the value of the couple’s property had increased above the mortgage balance during the one-year modification process with Bank of America and Nationstar.
“When I started the process, we had no equity, and it took so long that eventually, by the time Nationstar made a decision, we did,” Chhibber said. “Having equity didn’t help us to pay the mortgage.”
Hoffman, the Nationstar spokesman, said in an e-mail that “during the document-gathering process of a modification review, certain documents are only valid for 90 days. If the 90-day deadline passes, then new documents must be secured. That’s why we had to ask for certain documents to be sent again. It was not because any documents were lost.”
The New York Department of Financial Services is investigating both Nationstar and Ocwen. On Feb. 6, Ocwen said that the department had blocked a deal in which it planned to buy $39 billion of servicing rights from Wells Fargo & Co.
Benjamin M. Lawsky, who heads the department, has said he’s concerned that the explosive growth of the companies has compromised their loan servicing, putting homeowners at risk.
Representatives from Nationstar and Atlanta-based Ocwen have said they have done nothing wrong and are cooperating with the investigations.
Nationstar’s stock tripled in value since it began publicly trading in early 2012 through September. Since then, the shares have lost about 40 percent of their value, closing at $34.38 yesterday.
The Chhibber family moved to a rental apartment in the same northern Virginia town where they owned their house. They had to have a friend co-sign the lease because their credit has been ruined, Chhibber said.
“If everyone had done what they said they were going to do, we would have been able to stay in our home,” Chhibber said. “Now, we are lucky to be able to have an apartment.”
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