TheMReport

46 | TH E M REP O RT O R I G I NAT I O N S E R V I C I N G A NA LY T I C S S E C O N DA R Y M A R K E T SERVICING THE LATEST FHFA Watchdog Voices Concerns Regarding Non-Bank Servicers Accusations of high fees and bad service have regulators eyeing Ocwen and Nationstar. A s scrutiny contin- ues to grow in the servicing arena, the watchdog for the Fed- eral Housing Finance Agency (FHFA) says it has concerns about non-bank servicers work- ing with GSE loans. In a report released on the first of July, the Office of the Inspector General (OIG) for FHFA outlined its concerns over the growth of companies like Ocwen and Nationstar, who have ratcheted up their presence in the special servicing segment as banks—burdened by capital requirements—look to unload some of their mortgage servicing rights (MSR) portfolios. Out of the 30 largest servicers, FHFA OIG says that non-banks held a 17 percent share of mortgage market at end of 2013, representing nearly $1.7 trillion. As a result, the report says these non-bank com- panies may have taken on more volume than they can handle. "The rise in non-bank special servicers has been accompanied by consumer complaints, lawsuits, and other regulatory actions as the servicers' workload outstrips their processing capac- ity," the report said. FHFA OIG also expressed doubt as to whether non-banks operating without the same guidelines as traditional servicers would be able to weather an economic downturn as their stock of largely non-performing and at-risk loans worsens. In addition, OIG expressed concerns about the practice of non-banks using short-term financing to buy MSRs for loans that may only pay out after time, saying, "This practice can jeop- ardize the companies' operations and also the enterprises' timely payment guarantees and reputa- tion for loans they back." While concluding that FHFA and the GSEs—who approve transfers of their loans to non- bank special servicers—have "responded well to specific prob- lems," OIG recommended that the agency establish a framework for oversight to handle general non- bank risks and issue guidance on a risk management process. In a response, the FHFA agreed with the inspector's sug- gestions, pledging to develop guidance on risk management by December 1. OIG isn't the first regulator to warn of potential problems at non-bank servicers. Earlier this year, Benjamin Lawsky, superintendent of New York's Department of Financial Services, set his sights on Ocwen and later Nationstar, requesting information about their growth, practices, and treatment of consumers. The two companies are among the biggest non-banks in the servicing field, putting a focus on non-performing loans. Lawsky also revealed in May that his department plans to dig into the relationships some special servicers have with their affiliates, alleging "affiliated companies have every incentive to provide low-quality services for high fees, and they appear in some cases to be doing so." Both Ocwen and Nationstar have pledged to work with Lawsky's of- fice to resolve any concerns. FHFA OIG Urges Legal Action on Force-Placed Insurance LPI insurance was artificially inflated by profit-sharing practices, and borrowers are taking it to class-action suits. I n 2012, lender-placed insur- ance (LPI) issues cost Fan- nie Mae and Freddie Mac a combined $360 million, and now the federal government may take legal action against servicers for charging exces- sive LPI rates, according to a report released by the Federal Housing Finance Agency's Of- fice of the Inspector General. The report comes on the heels of several lawsuits—most of which have been settled out-of-court and for substantial amounts of money—that bor- rowers have filed against the nation's top lenders in the past few years. Wells Fargo and QBE, for example, settled a class-action suit in Florida last spring for $19 million and agreed to reimburse or credit affected borrowers 25 percent of any LPI premiums they assessed. Last September, JPMorgan Chase and Assurant settled with

• Cover