FBR Capital Markets takes a detailed look at the world of MSRs – the regulations, the risks, and the rewards – especially given a somewhat hostile regulatory environment and questions about what else could be coming down from Capitol Hill.
“The big debate for specialty mortgage servicers is whether government regulators allow large future servicing rights to be transferred or whether they block transfers or raise the cost of the transfer such that it is unprofitable,” the report, composed by Edward Mills, Paul Miller, and Ian Swanberg at FBR, states. “It appears that the industry is under assault by various regulators who question the specialty servicers’ business model of growth and are concerned that customers are not being well served.”
The report notes that the companies — including Nationstar (NSM), Ocwen Financial (OCN) and Walter Investments (WAC) — are adamant that while regulatory scrutiny has increased, a very robust servicing pipeline remains in place.
So which is it?
Will regulators, as the authors ask, continue to hound the industry as seen in New York’s top banking regulator, Department of Financial Services director Ben Lawsky, or will the industry be allowed to develop without excess regulatory interference?
Question No. 1: Can servicing be transferred?
It’s no secret that regulators have been scrutinizing and even putting a hold on transfers of mortgage servicing rights from originating banks to secondary servicers.
The Consumer Finance Protection Board’s leadership recently gave a speech critical of MSR transfers. In New York, Lawsky has held up the transfer of approximately 184,000 MSRs between Wells Fargo (WFC) and Ocwen. Lawsky cited worries that borrowers would be mistreated.
Some in Congress, like U.S. Rep Mark Takano, D-Calif., have piled on against transfers.
Ironically, it’s the new banking regulations that make banks want to shed their MSRs.
Question No. 2: What effect will new CFPB servicing rules have?
New CFPB servicing rules went into effect in January, including the Qualified Mortgage rule. Servicers must provide prompt crediting of payments to borrowers' accounts and prompt resolution of errors.
“The CFPB also set procedures for servicers dealing with delinquent mortgages and beginning the foreclosure process, generally making it more difficult to foreclose. The CFPB has vowed aggressive enforcement of these rules,” the report states.
For questions 3-6 plus the bonus wildcard question, click below.