NY regulator says U.S. non-bank mortgage servicers growing too quickly

NEW YORK Wed Feb 12, 2014 4:21pm EST

State financial regulator Benjamin Lawsky listens to testimony at a hearing in New York January 29, 2014. REUTERS/Eric Thayer

State financial regulator Benjamin Lawsky listens to testimony at a hearing in New York January 29, 2014.

Credit: Reuters/Eric Thayer

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NEW YORK (Reuters) - Authorities should stop the dramatic growth of non-bank mortgage servicers to make sure the companies can handle the business and not put homeowners at risk, New York's financial regulator said on Wednesday.

Some of the servicers may not be able to properly manage the loans they already have, said Benjamin Lawsky, superintendent of New York's Department of Financial Services.

"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 prepared remarks for Wednesday's New York Bankers Association Meeting and Economic Forum.

Last week, the department halted Ocwen Financial Corp's purchase of servicing rights on a portfolio of mortgages from Wells Fargo & Co. The regulator is concerned that Ocwen does not have the ability to handle the load, a person familiar with the matter said.

Ocwen is the fourth-largest mortgage servicer in the United States, behind Wells Fargo & Co, JPMorgan Chase & Co and Bank of America Corp.

Four of the top 10 firms servicing mortgages in the United States are non-banks, whereas all were banks in 2011, according to Lawsky.

"We are seeing far too many struggling homeowners getting caught in a vortex of lost paperwork, unexplained fees and avoidable foreclosures," Lawsky said.

Other state and federal authorities also have expressed concerns about non-bank mortgage servicers, which rapidly grew as banks offloaded mortgage servicing rights in the wake of the financial crisis and stronger capital requirements.

In December, Ocwen agreed to provide $2 billion in relief to homeowners as part of a settlement with the Consumer Financial Protection Bureau and 49 states over accusations of deceptive practices in mortgage servicing.

In his remarks on Wednesday, Lawsky took aim at one unidentified firm that he said quadrupled in size in about a year and now services more than $400 billion in loans. He said the firm has said it could service distressed loans at a 70 percent lower cost than the rest of the industry.

Lawsky said regulators have to ask whether such so-called efficiencies are "too good to be true."

His remarks seemed to be directed at Ocwen.

In an emailed statement, Ocwen attributed its growth and success to a conviction to keep "distressed homeowners in their homes and, whenever possible, helping people avoid foreclosure via sustainable modifications."

The firm said its "robust and scalable servicing technology" has enabled it to expand and help more struggling homeowners.

Tim Sloan, chief financial officer of Wells Fargo, said in an interview on CNBC on Tuesday that the bank hoped Ocwen could come to terms with regulators so the sale of servicing rights could go through.

"We're hopeful it works out, but you know what?" Sloan said. "If it doesn't, there are a lot of other buyers that are very interested in that portfolio."

Other non-bank servicers among the top 10 include Nationstar Mortgage Holdings Inc, PHH Mortgage, and Walter Investment Management.

Last year, housing giants Fannie Mae and Freddie Mac expressed concerns about Nationstar buying servicing rights to $122 billion of mortgage loans, after winning rights to a separate $215 billion mortgage portfolio, according to people familiar with the matter. Ally Financial, the seller of the mortgages, ended up selling most of the portfolio to Ocwen.

(Additional reporting by Peter Rudegeair in New York; Editing by Dan Grebler)

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