March 5, 2014 / 8:30 PM / 5 years ago

UPDATE 1-Nationstar Mortgage comes under scrutiny of New York regulator

By Karen Freifeld and Peter Rudegeair

NEW YORK, March 5 (Reuters) - New York state’s banking regulator on Wednesday requested information from Nationstar Mortgage LLC about its portfolio and mortgage servicing practices, saying that it has received hundreds of complaints from consumers as Nationstar’s business has seen explosive growth.

Benjamin Lawsky, superintendent of New York’s Department of Financial Services, sent a letter to Nationstar’s chief executive, Jesse Bray, saying the agency had “significant concerns” that the growth of Nationstar and other non-bank mortgage servicers may “create capacity issues that put homeowners at risk.”

Lawsky recently expressed similar concerns about Ocwen Financial Corp, the largest non-bank mortgage servicer, halting the company’s purchase of servicing rights from Wells Fargo & Co last month.

In Wednesday’s letter, Lawsky said Nationstar’s portfolio of loans serviced more than doubled from $126.5 billion of unpaid principal at the end of 2012 to $283.3 billion at the end of 2013.

Nationstar collects payments on more than one out of every 25 U.S. home loans.

“We have received hundreds of complaints ... about your company’s mortgage practices,” Lawsky wrote, related to mortgage modifications, improper fees, lost paperwork and other matters.

The letter requested a breakdown of the portfolio, the number of staff in each business unit and the volume of transactions per employee. It asked for acquisitions of servicing rights in the pipeline as well as rights purchased in excess of $1 billion since January 2013. Lawsky also asked for policies, practices and other loan information.

In a statement, Nationstar’s Bray said, “We have a proven track record of helping homeowners succeed and avoid foreclosure, and we welcome the opportunity to share this information with the New York Department of Financial Services.” Bray added that the company intends to comply “fully and transparently” with Lawsky’s letter.

Last year, housing finance giants Fannie Mae and Freddie Mac expressed concerns about Nationstar’s 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.

Nationstar is the fifth largest U.S. mortgage servicer, behind Wells Fargo, JPMorgan Chase & Co, Bank of America Corp and Ocwen, according to industry publication Inside Mortgage Finance.

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

Lawsky urged regulators in a February speech to halt the growth of these kinds of specialty servicers when doing so would protect homeowners from getting hurt.

Bray said in a February 27 conference call with analysts that the current regulatory environment will slow the approval process for adding to his company’s servicing load.

“I think it’s clearly going to take more time. And it’s clearly going to be a more involved process,” Bray said on the call.

Nationstar shares were down 2.57 percent at $30.28 in afternoon trading.

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