Housing Crisis: New Rules Hit Mortgage Servicers

Thu, 17 Jan 2013 13:57:45 +0000

The nation’s five largest banks service about half of all mortgages, but recently they have been selling those servicing rights to so-called “specialty servicers,” like Ocwen and Nationstar, whose stocks have been soaring. These companies specialize in delinquent mortgages.

The new rules could make mortgage servicing more expensive, especially for those specialty servicers and level the playing field between them and the big bank servicers. That is because many of the new rules are similar to rules the big banks are already following under the $25 billion servicing settlement signed early last year with state attorneys general and the Department of Justice over “robo-signing” foreclosure abuses. The specialty servicers have no such mandates.

(Read More: Homeowners With No Mortgage Offer Recovery Clues)

“If you’re a good servicer who’s been doing sensible things, this will probably be about what you are doing now, just with a heavier enforcement regime behind it,” said CFPB Director Richard Cordray. “For servicers that have been doing a poor job, and many of them have, they will have to change their processes and get in line.”

The new rules include some very basic service standards, like clear monthly statements, prompt payment crediting and quick correction of errors; In other words, common sense that one might not expect to see mandated by a federal regulator.

“This shows just how poorly performing the mortgage servicing industry was before the crisis, and then as volumes increased in delinquencies during the crisis, it all exponentially worsened,” said Cordray.

(Read More: US Home Prices Surge Despite Distress)

Most of the rules focus on those delinquencies. First, and perhaps foremost, servicers may not move forward with a foreclosure while simultaneously working with a borrower to avoid foreclosure. This “dual tracking” led to thousands of borrowers losing their homes when alternatives were well within reach.

Article source: http://www.cnbc.com/id/100385527

Big Banks Pushed to Outsource Mortgages

Tue, 14 Aug 2012 01:16:16 +0000

In the wake of the financial crisis and still in the midst of the foreclosure mess, the Consumer Financial Protection Bureau announced new rules for mortgage servicers designed to protect borrowers and get them faster, more effective and informative service.

The proposed changes by the CFPB would require servicers to consider applications for help from troubled borrowers within 30 days of receiving them. Meanwhile, servicers would not be allowed to proceed with a foreclosure until the decision on a potential modification has been made.

The new rules would apply to all mortgage servicers, not just the nation’s five largest banks that earlier this year agreed to a $25 billion settlement in the wake of the “robo-signing” paperwork scandal.

The new guidelines present new challenges to mortgage servicers — especially big banks already overwhelmed with delinquent loans.

“There’s a finite amount of capacity in the servicing enterprise today, and the system by design was never set up to withstand these rates of delinquency, these high rates of foreclosure for an extended and protracted period of time which is where we’re at right now,” said Edward Delgado, COO of Wingspan Portfolio Advisors, a Texas-based specialty servicer.

That is why many institutions are increasingly farming out servicing, or directly selling the loans to so-called specialty servicers. These entities, which number about two dozen, often have more experience and resources to deal with troubled loans.

Despite improvements in the overall mortgage markets, 5.8 million loans — or 11.9 percent of all residential U.S. mortgages — were either delinquent or in the foreclosure process at the end of June, according to Mortgage Bankers Association data. Mortgage delinquencies increased in the second quarter of this year, reversing a trend of fairly steady drops in the rate.

The bureau’s new policy “amplifies our role as a strategic partner in the prevention of foreclosures for the most part, by enhancing our outreach to homeowners and working closely with the banks to make contact,” said Delgado. He said his company works with smaller pools of troubled loans and can therefore conduct consumer outreach more effectively, even go door-to-door.

Just last week CitiMortgage
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] announced it is selling $158 million worth of mortgages to special servicer Carrington Capital, which will conduct a deed-for-lease program. That’s where troubled borrowers turn over ownership of the home to Carrington and then can rent the home back if they choose, sidestepping a more costly and credit-crushing foreclosure.

“As a financial institution, managing a program of this nature is not within our area of expertise, so we joined with Carrington, one of the best property management companies in the country, to help make this program work,” said Sanjiv Das, CEO of CitiMortgage in a release.

Insiders at Carrington said they expect to see more deals like Citi’s, saying federal regulators are actually pushing larger banks to offload bad loans. The larger firms simply don’t have the capacity to handle the large volume of delinquent loans, made abundantly clear in hundreds of stories from frustrated borrowers who face foreclosure. They tell of lost documents, impersonal service and constant runaround.

Now specialty servicers stand to gain more business; publicly traded servicers like Nationstar
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], Walter Investment Management
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] may be good bets for investors, as the foreclosure crisis plods on.

“The further we go into the crisis — the addition layers of regulatory oversight, the complexity of various programs that are being engaged — the more that the larger banks will presume a position of being a master servicer maintaining control and oversight of key functions,” said Wingspan’s Delgado. He added the role of special servicer would “continue to expand across the marketplace.”

—By CNBC’s Diana Olick

Questions? Comments? And follow me on Twitter @Diana_Olick

Article source: http://www.cnbc.com/id/48648395?__source=RSS*blog*&par=RSS

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Housing Crisis: New Rules Hit Mortgage Servicers

Big Banks Pushed to Outsource Mortgages