In another signal that the default mortgage business is shrinking, Walter Investment Management Corp. announced Friday that it acquired “certain assets” ofResidential Credit Solutions,a Ft. Worth, Texas-based mortgage servicing company, specializes in servicing delinquent or default loans and so-called “credit-sensitive” residential mortgage loans, where the borrower is at high risk for default.
Residential Credit Solutions is a wholly owned subsidiary of American Capital Mortgage Investment Corp., which bought RCS in 2013.
But according to a release from Walter Investment, “certain assets” of RCS are now property of Walter Investment’s wholly owned subsidiary, Ditech Financial.
According to Walter Investment, the deal includes the acquisition of “certain assets of the RCS servicing platform, the transition of a number of core operational employees to the Ditech servicing organization as well as entering into new residential mortgage loan subservicing agreements with RCS and the transfer of certain existing residential mortgage loan subservicing agreements.”
In its release, Walter Investment stated that the subservicing agreements cover unpaid principal balance of approximately $9.8 billion at the date of closing.
The company said that the servicing transfers are expected to take place in the first quarter of 2016.
While a “number of core operational employees” are being transferred from RCS to Ditech, more than 130 of RCS’ employees will not be making the transition, as the company is laying off 134 employees by February 29, according to the Worker Adjustment and Retraining Notification filing, found here.
[H/T: The layoffs were reported earlier this week by the Dallas Business Journal, which reported that RCS is closing its Ft. Worth facility and laying off 134 employees.]
With the deal, some parts of RCS will become part of Ditech, which grew larger last year, when Walter Investment merged Green Tree Servicing with Ditech Mortgage Corp, to form a new company, ditech, a Walter company.
When the merger was completed in September 2015, Walter Investments’ origination and servicing businesses began to operate under the ditech umbrella.
“We believe the completion of our customer-focused originations and servicing integration under the Ditech brand will simplify many processes, improving the quality of our customers' experience as they do business with us, as well as drive operational efficiencies,” Walter Invesment’s then-CEO Mark O’Brien said.
And now Ditech is growing again, with the addition of RCS.
When Walter Investment divested itself of the Green Tree name, the company left behind Green Tree’s legacy, which included a $63 million fine by the Consumer Financial Protection Bureau and the Federal Trade Commission 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.
But in bringing on part of RCS, Walter Investment now has another company under its umbrella that had a brush with the CFPB.
In July 2015, the CFPB fined RCS $1.5 million for illegal mortgage servicing practices.
According to a release from the CFPB, Residential Credit Solutions failed to honor modifications for loans transferred from other servicers, treated consumers as if they were in default when they weren’t, sent consumers escrow statements falsely claiming they were due a refund, and forced consumers to waive their rights in order to get a repayment plan.
According to the CFPB, Residential Credit Solutions engaged in illegal practices when servicing loans that it acquired from other servicers.
The CFPB order stated that the company, on a number of occasions, failed to honor trial loan modifications that consumers had entered into with their prior servicers.
Instead of honoring those previous agreements, Residential Credit Solutions allegedly insisted that the consumer re-prove that he or she was qualified.
According to the CFPB, by refusing to honor previously agreed upon loan modifications, Residential Credit Solutions effectively set consumers back as though they had not received a trial modification.
But now Walter Investment and RCS are moving forward together.
"We are pleased to announce the closing of the acquisition of certain assets from the RCS servicing platform and welcome the RCS employees to the Ditech team,” said Denmar Dixon, Walter Investment's vice chairman, chief executive officer and president. “We believe this acquisition provides Ditech the opportunity to expand its servicing operations by adding qualified and experienced staff and approximately $9.8 billion of subservicing contracts that we expect will generate attractive margins."