In the last two years, millions of borrowers with mortgages have been moved from banks to nonbanks. This can result in problems for home loan borrowers.
A reason for this is that a lot of banks are getting rid of their mortgage servicing rights. 14 of the leading bank servicers, including JPMorgan Chase & Co. (JPM), Wells Fargo & Co. (WFC), and Bank of America (BAC) have sold off over $1 trillion of these rights in the last two years. The primary buyers are nonbank servicers, which now handle one in every seven mortgages.
The Consumer Financial Protection Bureau, which is engaged in the oversight of nonbanks, enacted regulations earlier this year that extended rules for banks to nonbank servicers that collect mortgage payments and deal with foreclosures and modifications. Last month, the bureau also put out guidance on new regulations that specifies the way loan transfers to nonbanks should be dealt with, including a provision mandating that buyers and sellers conduct meetings in at timely manner to talk about the continuity of service before a mortgage is handed off. Sales contracts also must stipulate that mortgage documents need to be given to the new servicer. However, a recently released CFPB statement reported that some nonbank services are billing customers incorrectly, not honoring approved modifications, and losing paperwork.
Bloomberg, in a recent article, wrote about the Chhibber family. They lost their Virginia home after a $1.3 billion mortgage deal was reached between Nationstar Mortgage Holdings Inc. (NSM) and Bank of America. After losing their business and a portion of their income, the family started working with the bank to modify their loan. However, before the loan was complete, Bank of America sold the Chhibbers' mortgage to Nationstar.
The Chhibbers reapplied to the nonbank servicer for a remodification, which it initially approved but then recanted. They say the reason given to them was that the value of the property had gone up beyond the mortgage balance during the modification process.
Nationstar claims there was no modification when it got the loan and that the process had to be restarted. (One of the rules that the CFPB has extended to nonbank servicers is that they are not allowed to make applicants begin the process again following a loan transfer.)
In other mortgage-servicing news, the U.S. Securities and Exchange Commission issued a subpoena to Ocwen Financial (OCN), a mortgage-servicing company, asking for documents involving a group of companies that it conducts business with. Benjamin M. Lawsky, the top banking regulator in New York State, had expressed concern that the firm and another company, Altisource Portfolio Solutions (ASPS), had hired the same risk officer.
Some investors reportedly don’t know whether companies are charging too much for their services and if the mortgage bond investors are the ones having to pay for the added costs. Earlier this summer, the Federal Housing Finance Agency voiced concern about how nonbank financial firms that process delinquent mortgages may not have sufficient funding.
Family Loses Virginia Home as Regulators Target Nonbanks, Bloomberg, September 4, 2014
Nonbank servicers further muddy the mortgage mess, Philly.com, September 7, 2014
FHFA Inspector General Cites Risks on Nonbank Mortgage Servicers, The Wall Street Journal, July 1, 2014
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