Some borrowers fall through cracks as big banks hand off mortgage rights
CHARLOTTE — Millions of homeowners across the country have received an unexpected message from their banks: Goodbye.
After years of collecting mortgage payments from as many people as they could, big banks such as Bank of America and Wells Fargo are scaling back. As servicing mortgages grows less lucrative, they're selling the rights to do so in deals measured by the billions.
The buyers are specialty companies much less known to the public. And as the huge transfers take place, regulators have signaled they are concerned about a small but growing fraction of homeowners who report falling through the cracks.
Some have found their online accounts unavailable. Others have reported delays in receiving account numbers. The details of some promised loan modifications haven't been carried through with the new servicer.
In Charlotte, one man said his short sale, arranged with Bank of America, wasn't honored after the mortgage was transferred. The home is in foreclosure.
Tales like these have led the Consumer Financial Protection Bureau and Conference of State Bank Supervisors to warn the industry they'll be paying close attention to how the handoffs work.
Mortgage servicers aren't bracing for fines and penalties, industry watchers say, but they are investing more energy in making sure their data technology is up to speed.
“It's something everybody in the business is paying serious attention to,” said Don Lampe, an attorney with the Dykema law firm who represents financial institutions.
Bank of America and Wells Fargo said they're working carefully with customers to make sure their accounts are handled correctly.
The loans' new owners, too, have beefed up teams to respond to consumer complaints. But they say they have a track record of handling the vast majority of loans successfully.
“We'll have 2.5 million consumers that we service loans for,” said Executive Vice President Marshall Murphy of Texas-based Nationstar Mortgage Holdings, which earlier this year bought the rights to service $215 billion in loans from Bank of America. “Of course you're going to have some instances where the consumer has not had a great experience. We're trying to do all we can — one, to minimize that, and two, to address the problems that do arise.”
Servicing large mortgage portfolios has become less attractive for big banks for several reasons. Proposed capital rules count mortgage servicing rights as riskier than they were before, meaning banks have to keep a greater cash cushion against losses on those loans.
At the same time, the cost of servicing has increased significantly. Five big banks, including Bank of America and Wells Fargo, now have to abide by a slate of several hundred rules mandated by a massive state and federal settlement. The Consumer Financial Protection Bureau also has more stringent servicing standards going into effect next year.
“Servicers have a tremendous amount of obligations now,” said Keith Gumbinger, vice president of mortgage industry publication HSH.com. “It's become a more burdensome opportunity.”
But that way of doing business isn't new to the three primary companies doing the buying — Nationstar, Ocwen Financial Corp. and Walter Investment Management Corp., which services under the name of its subsidiary, Green Tree.
Unlike the big banks, which set up their mortgage servicing operations to handle large numbers of people with minimal involvement, the specialty servicers were designed for just the opposite, with more one-on-one service, Sterne Agee analyst Henry Coffey said.
Bank of America has sold the top three companies at least $316 billion of its mortgage servicing portfolio since last June. Wells Fargo sold about $12 billion in a reverse mortgage portfolio, and executives have signaled that it might consider more. JPMorgan Chase, Ally Financial, MetLife and others have done the same.
The shift is huge. Nearly $500 billion in mortgages have moved over the past few months, and one company estimates that as much as one-fifth of the $10 trillion mortgage market could ultimately change hands.
The specialty servicers taking on these mortgages are growing rapidly and stand to make hundreds of millions of dollars. The three primary companies increased their earnings more than $170 million last year as the sales began, and analysts following the industry are bullish on their prospects.
Nationstar doubled its servicing portfolio with just one Bank of America transaction.
“Bank of America's actions alone are creating a major shift in the market,” Michael Drayne, senior vice president of government-owned mortgage bond backer Ginnie Mae, said in a Q&A distributed to stakeholders in April. “We don't see this trend slowing down any time soon.”
But regulators have grown concerned that customers' information is being lost through all the technological transfers. All three of the specialty servicers rank in the top 10 of a database of mortgage complaints maintained by the Consumer Financial Protection Bureau, and the number has been accelerating.