The common view that nonbanks are taking over the mortgage space from the big banks in a meaningful way is being muted by a harsh-reality report from Moody’s Investors Service.
While nonbanks continue to make decent inroads on the originations side of the business, it’s the servicing side that’s proved more of a struggle.
According to a Moody’s review of 2015 financials at the three largest US non-bank mortgage servicers — Nationstar Mortgage, Ocwen Financial and Walter Investment Management — only one was profitable.
"Nationstar was the only large Moody's-rated non-bank mortgage servicer to be profitable in 2015, and its net income was just $43 million," says Moody's analyst, Warren Kornfeld.
"Concurrently, all three non-bank servicers' reliance on confidence-sensitive, short-term funding heightens their liquidity and refinancing risk, while Walter faces the additional challenge of a weak capital position," he adds.
Why little to no profits?
High operational costs and increased regulatory oversight hit, and will continue to hit, these nonbanks' bottom line.
Moody’s expects it will be another tough year to come for these three nonbank mortgage servicers.
“Profitability has been weak for the past two years due mainly to mortgage servicing right fair value adjustments and goodwill impairments, along with higher regulatory expenses,” Moody's says in a recent report.
There is one area where Nationstar and Ocwen do outperform the big banks, the report states; Both hold better levels of loss mitigation, in comparison.