Monica Almeida/The New York Times
Representative Maxine Waters of California is urging federal banking regulators to scrutinize the sale of billions of dollars of mortgage-servicing rights to a fleet of specialty firms, a move that comes amid mounting concerns that some of the most vulnerable homeowners are facing fresh abuses in battles to save their homes.
For some Americans whose home values plummeted in the depths of the financial crisis, those battles, alternating between hope and despair, have lasted for years.
And now, more than five years after the financial crisis and just as some of those homeowners were getting back on track, the ground is shifting beneath them.
In just a few years, the specialty servicers, which collect mortgage payments and pass them on to investors, have voraciously bought servicing rights from the nation’s largest banks.
As they do, some state and federal regulators are raising questions about whether the new servicers, including Ocwen Financial and Nationstar, have the capacity to handle the influx.
In a letter on Wednesday to the Comptroller of the Currency, Thomas J. Curry, and Joseph A. Smith Jr., the monitor of the national mortgage settlement, Ms. Waters, the top Democrat on the House Financial Services Committee, wrote that greater attention was needed to “ensure that these nonbank servicers have the operational capacity to manage the increased volume.”
Ms. Waters is not alone. She joins Benjamin M. Lawsky, New York’s top banking regulator, who this month indefinitely halted the transfer of about $39 billion in servicing rights from Wells Fargo to Ocwen.
Katherine Porter, who was appointed by the California attorney general to oversee the national mortgage settlement, has been working with banks to address homeowner complaints about the transfers.
Such complaints have soared, Ms. Porter says, adding that the specialty servicers “overpromised and underdelivered.”
Top officials with the federal Consumer Financial Protection Bureau, which oversees the specialty servicers, are scrutinizing the sales to ensure that homeowners don’t get lost in the shuffle.
Together, servicing companies like Nationstar and Ocwen Financial now have 17 percent of the mortgage servicing market, up from 3 percent in 2010, according to Inside Mortgage Finance, an industry publication.
As companies buy servicing rights at a rapid clip, some homeowners are mired in delays and some of the same problems — shoddy paperwork, erroneous fees and wrongful evictions — that led to a $26 billion settlement between the nation’s largest banks and 49 state attorneys general in 2012.
Part of the problems emerging for homeowners, regulators and analysts say, stem from the volume of mortgage servicing rights changing hands.
Flaws in computer systems can spur frustrations and compound delays for some homeowners who can least afford to see their modifications stall as fees mount.
At Ocwen, there is a baffling number of computer codes, about 8,400 varieties, to flag issues within borrowers’ files like a job loss, according to a person briefed on the matter. But large swaths of these codes are duplicates, the person said.
The servicing companies defend their track records of helping homeowners, saying they have had success in keeping borrowers in their homes. Ocwen pointed to its investment in customer service, while Nationstar emphasized that it assisted 108,000 homeowners with some form of modification or other repayment plan in 2013.
Ocwen also notes that it has plowed money into bolstering infrastructure and customer service.
Still, regulators say, there is a knottier problem: specialty servicers, benefiting from leverage, may be profiting at the expense of homeowners and the investors who own the mortgages. Typically servicers get a fixed fee from investors for handling the mortgage payments, no matter whether the borrower is up to date or has fallen behind. But the fundamental arithmetic of that business has changed, in part, because the specialty servicers are buying the rights to collect payments at steep discounts, along with the loan advances — the money that the servicers pay to investors to cover any delinquent payment.
The faster the servicer can make the loan current again, the faster investors pay back the servicers’ advance in full, resulting in a profit. Such arbitrage, some investors worry, could gives servicers an incentive to offer modifications that cause borrowers to default again.
Ocwen has among the lowest redefault rates among large servicers of the most troubled subprime loans, according to Moody’s Investors Service.
While the modifications can seem like a lifeline, some deals could actually make life worse for borrowers.
Lamica Jacques, a 38-year-old homeowner in Springfield Gardens, Queens, was thrilled when she got a letter from Nationstar in September, offering to reduce her mortgage payment by 35 percent, according to a copy of the letter.
What Ms. Jacques didn’t realize at first was that her monthly payments would cover only interest or that by signing the document she was waiving her right to sue the Texas company.
Ms. Jacques, whose lawyer urged her not to sign the document, said she feels used: “Sometimes it feels like the decks are just stacked against you so that you really do fail.”
Ms. Waters emphasized in her letter that homeowners like Ms. Jacques may be suffering because of the transfers.
She also asked the regulators to ensure that these sales are not being used “to evade modifications of loans.” Under servicing standards from the Consumer Financial Protection Bureau and the national mortgage settlement, servicers are required to honor any permanent loan modification agreed upon before the sale.
In California, those borrowers have more protections because of the Homeowner Bill of Rights, a state law that went into effect last year.
This post has been revised to reflect the following correction:
Correction: February 19, 2014
An earlier version of this article misstated the year that the Homeowner Bill of Rights went into effect in California. It went into effect last year, not this year.
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