Benjamin Lawsky, superintendent of the New York Department of Financial Services and the regulator who halted Ocwen Financial’s planned $2.7 billion mortgage servicing rights acquisition, is taking aim at other non-bank mortgage servicers.
On Wednesday, Lawsky told a group of bankers that state and federal regulators should be more active in deciding whether these types of institutions have the capacity to service the loans, calling the growth of non-bank mortgage servicers a “troubling trend.”
While in 2011 the top 10 largest mortgage servicers were traditional banks, four of the top 10 are now non-banks, he noted to the New York Bankers Association Meeting and Economic Forum. Combined, those four service more than a trillion dollars of loans.
“I think it is appropriate for regulators—where warranted—to halt the explosive growth in the non-bank mortgage servicing industry before more homeowners get hurt,” Lawsky said in his prepared remarks.
Last December, Ocwen—the parent company of Liberty Home Equity Solutions—agreed to provide a $2 billion homeowner relief settlement in the next three years as part of a Consumer Financial Protection Bureau investigation into the servicer’s treatment of consumers. The servicer announced last week that the state Department of Financial Services had put a deal to buy $39 billion of debt from Wells Fargo on hold “indefinitely.”
“[W]e have serious concerns that some of these non-bank mortgage servicers are getting too big, too fast,” Lawsky said.
He cited an unnamed servicer that announced in a recent SEC filing that it sees opportunities for up to another trillion dollars in additional servicing growth in the next two to three years—after almost quadrupling in size in the space of one year to a $400 billion servicing portfolio.
That same company says it can service distressed loans—leftover “wreckage” from the mortgage meltdown, as Lawsky termed it—at a 70% discount from the rest of the industry.
“[A]s regulators, when we see such rapid growth, and when we see regulated institutions boasting that they can perform services at a fraction of their prior cost, it raises red flags. It causes us to take a closer look,” he said in his prepared statement. “And when we take that closer look at the non-bank mortgage servicing industry, we see corners being cut.”
Because of those red flags, Lawsky said, it’s appropriate for regulators to intervene.
“We are seeing far too many struggling homeowners getting caught in a vortex of lost paperwork, unexplained fees and avoidable foreclosures,” he said. “…This is an extraordinarily challenging issue that the Department of Financial Services—as well as other regulators—must confront. And it’s something you should expect to hear more about from us in the weeks and months ahead.”
Written by Alyssa Gerace