The financial crisis brought the residential mortgage servicing industry to an abrupt halt as federal banking entities cracked down on the alleged abuses by the industry after an onslaught of borrowers lost their homes.
The previous methods and controls in place to prevent foreclosures were tossed to the wayside, and government agencies handed residential mortgage servicers a much stricter regulatory environment to work in.
But now with the financial crisis nearly a decade in the past, a new report from S&P Global Market Intelligence suggested that mortgage servicing companies may be poised for a turn toward stability and growth thanks to the regulatory controls put in place after the downturn.
One of the most notable actions after the crisis was the National Mortgage Settlement. In 2012, a federal judge approved a $25 billion robo-signing settlement with the top-five mortgage servicers.
The five servicers, Bank of America, Wells Fargo, JPMorgan Chase, Citigroup and Ally Financial, had to provide $17 billion in different forms of homeowner relief, $5 billion in remediation payments to borrowers and $3 billion in fines to the states.
The servicers completed the consumer relief requirement of this settlement back in March 2014.
Settlements, like the one above, left servicers with reputational issues as an industry, the report noted. They’ve been trying to rectify this ever since.
Just as regulatory burdens increased, so did the volume of loans serviced nationwide because of many factors, including low interest rates, which made homeownership more affordable.
“The larger loan volume only exacerbated servicers' additional responsibilities of ensuring a larger number of borrowers are serviced in an appropriate manner. Servicers started to learn just how different the regulatory landscape, let alone how expensive, their situation would look after the crisis,” the report stated.
But there is a silver lining for the industry. The report explained that due to the regulatory heat servicers have received in the past decade, they’re working to ensure they're compliant with all relevant servicing regulations.
“Even if some deficiencies occur, as might happen when servicing thousands or millions of accounts, quickly correcting them and preventing recurrence is key because reputational damage alone can be quite substantial and long-lasting,” it stated.
Now in the aftermath of the crisis, the report stated that most servicers are better equipped and have a more structured vendor management programs, enhanced technology and stronger lines of defense in place.
“The potential changes in legislation, ongoing costs of servicer compliance and noncompliance, and possible instability of the U.S. economy and housing market all pose continued challenges to servicers,” it stated. “However, their financial investments and ongoing efforts to enhance their internal controls could be a cure to the continued challenges ahead.”
For a current pulse on the servicing industry, two of the biggest servicers reported their second-quarter earnings this week, with neither doing too well.
Ocwen Financial disclosed in its second quarter earnings on Wednesday morning that it posted a loss of $44.4 million in the second quarter, compared to a loss of $32.6 million in the first quarter, and a loss of $87.2 million in the second quarter of last year.
Nationstar Mortgage, the nonbank soon to be known as Mr. Cooper, reported Thursday that it saw its first quarterly net loss in a year, and its servicing segment posted a $42 million GAAP pre-tax loss, but $55 million in adjusted pretax income.