Unsurprisingly, Green Tree Servicing, a subsidiary of Walter Investment Management Corp. (WAC), could be facing several negative outcomes, including a potential downgrade to its servicer ratings, in the wake of its $63 million fine, according to a new report from Moody’s Investors Service.
Last week, the Consumer Financial Protection Bureau and the Federal Trade Commission fined Green Tree for “mistreating borrowers” by failing to honor modifications for loans transferred from other servicers, demanding payments before providing loss mitigation options, delaying decisions on short sales, and harassing and threatening overdue borrowers.
As part of the agreement, Green Tree agreed to pay $48 million in restitution to victims, and a $15 million civil money penalty to the CFPB’s Civil Penalty Fund for its illegal actions, the CFPB said.
In its new report, Moody’s states that it currently lists Green Tree’s primary servicer ratings for second liens and manufactured home mortgages as “SQ2,” and “SQ2-” as a primary servicer of subprime mortgages, with Green Tree’s subprime servicer ratings currently “on review” for a possible downgrade.
“Because the Green Tree's allegedly abusive practices call into question the servicer's management, compliance protocols and default servicing practices, the settlement could be a credit negative for Green Tree’s servicer quality assessment,” Moody’s analysts Francis Wissman, William Fricke, Bruce Fabrikant, and Angela Akwule said in the report.
“Increased scrutiny by regulatory bodies/ agencies, and any resultant investigations and penalties, could also negatively affect Green Tree's SQ assessment,” the analysts continued. “If Green Tree continues to experience problematic servicing issues, the GSEs could hesitate to approve future transfers of servicing to Green Tree and the servicer's business prospects could suffer as a result.”
As part of the settlement with the CFPB and the FTC, Green Tree is required to make several changes to its operation, including establishing and maintaining a comprehensive data integrity program to ensure the accuracy and completeness of data and other information about consumers’ accounts before servicing their loans, ensuring that it has enough personnel and the technical capacity to handle loss mitigation requests and respond to consumer inquiries in a timely fashion, and making its loss mitigation application available to consumers at no cost and on its website.
The Moody’s analysts expect that implementing those changes could have an impact on Green Tree’s bottom line.
“The settlement also will likely compel Green Tree to implement system enhancements, additional notifications, and possible staffing increases, which in turn will cause Green Tree’s servicing costs to rise,” the Moody’s analysts said. “We expect that Green Tree, and not the residential mortgage-backed securities trusts, will bear responsibility for these costs. In addition, under the settlement foreclosure timelines are likely to lengthen. Green Tree must now examine existing foreclosures to identify and review affected consumers for loss mitigation options.”
The Moody’s analysts also expect to see increased loan modifications and more short sales as a result of Green Tree’s settlement, as well as improved handling of the transfer of servicing protocols, and better customer service for Green Tree borrowers.
For investors in private residential mortgage-backed securities, Green Tree’s settlement will not have a material impact on the future performance of the RMBS transactions that contain Green Tree-serviced loans, Moody’s said.
“The majority of Moody’s rated transactions that Green Tree services are backed by manufactured housing loans and closed- end second loans, and for the most part, these loans are performing poorly and will continue to do so,” the analysts said.
“Increased loss mitigation efforts by Green Tree will not lead to a material changes in our projected losses because our estimates of future performance already assume that Green Tree has in place procedures for mitigating a certain level of potential pool losses,” the analysts said. “Historically, Green Tree has offered payment deferrals as a loss mitigation tool to keep borrowers in their manufactured housing units. If a borrower can demonstrate the ability to make future payments, Green Tree usually adds the missed payments to the outstanding loan balance and classifies the borrower’s status as current. We assume little or no recoveries if a manufactured housing unit is liquidated.”