As struggling homeowners try to dodge foreclosure, more are running into problems with servicers -- the firms that collect mortgage payments. Regulators are fielding complaints about these companies centered around the same issues that have recently dogged major U.S. lenders: careless paperwork, incorrect fees, and wrongful evictions.
Lenders increasingly are turning troubled loans over to servicers, which not only transfer payments from borrowers to lenders but also are instrumental in the decision to either grant a modification or move forward on a foreclosure. The companies are snapping up servicing rights, causing delays for some homeowners and forcing them to submit documents repeatedly as ownership of their loan changes hands. Companies like Nationstar and Ocwen Financial now claim 17 percent of the mortgage servicing market, compared to 3 percent in 2010, according to Inside Mortgage Finance.
While regulators at first thought the specialized firms could better help troubled homeowners, they now are worried about the impact on consumers just getting back on track after the housing crisis. Unlike lenders, servicers are not checked by post-crisis rules; and many lack the technology or infrastructure to handle the high volume of problem loans. They also benefit from working through distressed loans as quickly as possibly, raising questions about whether they are prodding homeowners into foreclosure or offering workouts that could cause them to fall further behind.
In response, New York state banking regulator Benjamin M. Lawsky this month indefinitely halted the transfer of about $39 billion in servicing rights from Wells Fargo to Ocwen, and the federal Consumer Financial Protection Bureau is looking into servicing sales to ensure that homeowners do not get lost in the process.