Mortgage servicing experts foresee a future market dominated by specialists such as Ocwen Financial (OCN) and Nationstar Mortgage Holdings (NSM), while big, traditional banks head for the hills when it comes to servicing to escape litigation and costs.

At least this was the consensus of a panel speaking at the Mortgage Banker’s Association 100th Annual Convention and Expo.

Two factors are behind the shift: a lack of interest-earning assets and mass litigation issues, explained the panel, which included Robert Caruso, executive managing director for Lending Processing Services (LPS); Dean DeMeritte, EVP for Phoenix Capital; and David Hisey, an executive vice president with Nationstar

There will be new cash entering the market, though it will largely be driven by small institutions because these firms own their own portfolios and service loans in-house, the panelists said. 

At mega banks, leaders are taking their firms in a different direction. The challenging mortgage environment combined with loss mitigation issues have left the big banks with only one choice—slowly pulling out of the servicing space, the panelists concluded.

Smaller institutions are far more aware that mortgage servicing is an operationally intensive asset, meaning they know the risks well and can price in those risks appropriately.

While the issue of hedge fund managers and Wall Street brokers entering the mortgage servicing market has raised some concerns in the industry, the experts are not concerned about these firms entering the space aggressively.

"These assets don’t lend themselves to trading, but do lend themselves to investing," Hisney stated.

Another area tackled was the implementation of the Consumer Financial Protection Bureau’s regulations at the start of the new year. The big question the panel attempted to answer is whether servicers are ready for all the changes.

While most panelists admitted that the transition has been difficult due to the massive amount of detail that goes through the servicing process underneath the forthcoming regulations, servicers will be equipped to handle the implementation, the panel said.