In 2011, the ten largest servicers of mortgage loans in the United States were banks.  Two years later, only five of the ten largest servicers of mortgage loans were banks.  The trend is for non-banks to service delinquent loans.  The two largest non-bank servicers of mortgage loans are Ocwen and Nationstar.  This trend is evident in my own practice representing homeowners faced with foreclosure, loan modification problems, and eviction.  See, for example, my previous blog on loan modification.

The growth of Ocwen,  Nationstar and other non-bank servicers raises particular concerns.  Between 2011 and 2014, Ocwen’s share of the servicing market grew by 350%.  Over the same period, Nationstar’s market share increased by 290%.  See Pamela Lee, “Nonbank Specialty Servicers: What’s the Big Deal,” Urban Institute (August 2014).  One big and troubling problem with the massive transfer of mortgage servicing rights to non-banks is the disruption in loan modification contracts.  It is common for clients to call the office complaining that following a loan modification contract – which means the “offer” was “accepted” by the borrower, creating an enforceable contract  – the servicing rights are sold and the new servicer refuses to honor the loan modification contract.  The client is forced to start all over again with the new servicer, or sue to enforce the contract made with the prior servicer.

Another and related concern is with the capacity of the nonbank servicers to handle the high numbers of distressed loans they are buying the rights to service.  In New York, for example, the Department of Financial Services put the brakes on Ocwen’s purchase of $39 billion of mortgage servicing rights from Wells Fargo because of doubts that Ocwen could handle the new servicing load (approximately 184,000 loans).   Elsewhere the purchases of mortgage servicing rights have not been blocked, fewer regulations exist to control non-bank servicers, and the result has been poor service, inefficient loan administration, and repeated failures to honor loan modification contracts won by homeowners.

Ocwen relies heavily on offshore employees to deal with the enormous increase in its servicing portfolio.  In 2012, 82% of Ocwen’s employees were in India.  Ocwen has the largest number of offshore employees when compared to other non-bank servicers.  According to the rating agency Standard & Poors, no other servicer of residential loans provides such a significant amount of late stage collection and loss mitigation (read: loan modifications) operations offshore.

There is data available (and referenced in the Lee article) to suggest that Ocwen and Nationstar approve fewer loan modifications than bank servicers.  Anecdotally, I have seen many examples of nonbank servicers either refusing to honor the loan modification contracts of previous servicers, or declining to provide a loan modification to a homeowner who is more than capable of making loan payments.

Bulk transfers of mortgage servicing rights impose significant risk on homeowners.  Legitimate concerns with staffing capacity, as well as rapid growth in the non-bank servicers volume of distressed loans, often means that homeowners will not get the benefit of bargains already won, such as loan modifications, or will be deprived of loan modifications to which they are entitled.