Nonbank mortgage servicers have increased their portfolios substantially in recent months. According to Inside Mortgage Finance, the seven largest mortgages servicer accounted for $1.4 trillion in mortgages as of the end of the first quarter, an increase of 69% in just three month.
Mortgage servicers are paid to collect mortgage payments and handle delinquencies and foreclosures on behalf of their clients, typically banks, credit unions, or investors.
Due to new capital rules and the amount of paperwork and compliance costs involved many financial institutions are finding it more cost effective to outsource mortgage servicing to nonbank mortgage servicers such as Nationstar, Ocwen, Walter Investment Management, Dovenmuehle, and others.
Mortgage servicers may have cost and operational advantages over banks, which allows them to more efficiently administers the servicing and collections of mortgages. They don’t have capital rules to contend with and can focus their systems and staff specifically on servicing because it’s their main business. On a $100,000 loan, the average servicer can end up spending more than $875 a year to collect payments on it, while Ocwen will spend closer to $260, its Chief Financial Officer John Britti said in a recent presentation.
Regulators and others express concern
The Consumer Financial Protection Bureau (CFPB) has issued rules regarding mortgage servicing and recently issued a bulletin advising home lenders about their obligations to protect consumers during the transfer process.
State regulators have expressed concerns as has Fannie Mae. For example, New York regulators ordered Ocwen to accept an independent monitor to oversee its servicing practices in exchange for allowing the firm to grow its servicing portfolio and Leslie Peeler, head of Fannie’s national servicing organization, recently said, “We are very concerned about how these servicers are dealing with customers.”
Consumer advocates also point to cases in which consumers get conflicting information and end up getting lost in the transfer process.
The mortgage servicers for their part say they are equipped to handle the growth. John Hoffman, a spokesman for Nationstar said the company has both the capacity and processes in place to handle the growth. He said the company can handle 6 million loans, far more than the 2.5 million it will have after it completes a deal to acquire loans from Bank of America.
What’s clear is nonbank servicers have experienced significant growth as of late. What remains to be seen is whether they can really keep up and do a good job servicing customers.
What do you think? Can mortgage servicers do a better job servicing mortgages than banks or credit unions?