Nationstar (aka Mr. Cooper) reaches $17 million mortgage settlement with NYDFS

$5 million fine, $5 million to local nonprofit, $7 million to New York residents

For the third time in the last six months, Nationstar Mortgage, the nonbank also known as Mr. Cooper, has reached a multi-million-dollar settlement with a state banking regulator over mortgage-related issues.

Back in December, Nationstar reached a $9.2 million settlement with the California Department of Business Oversight to resolve allegations that the company “overcharged borrowers and failed to properly investigate consumer complaints.”

One month later, the state of Massachusetts hit Nationstar with a fine and sanctions for allegedly putting hundreds of borrowers in the state at a heightened risk of foreclosure by offering them “unfair and deceptive” mortgage modifications.

Now, it’s New York’s turn.

The New York Department of Financial Services announced Wednesday that it reached a $17 million settlement with Nationstar for numerous violations of the state’s financial laws.

The settlement shouldn’t come as a shock, considering that Nationstar disclosed back in November that it was in negotiations with the NYDFS over certain “legacy” issues.

According to the NYDFS, an investigation uncovered “numerous deficiencies and violations” of the state’s banking laws during examinations of Nationstar’s servicing and origination operations between 2011 and 2014.

The NYDFS said that its examinations found evidence that Nationstar failed to develop “effective, scalable controls” that could keep pace with its growth during the time period in question, causing “damage” to its customers.

The settlement covers both Nationstar’s mortgage origination and servicing activities in the state.

Within Nationstar’s servicing operations, the NYDFS found the following:

  • The company’s document retention and document management processes showed significant flaws. In many instances, servicing files lacked documentation showing the company’s compliance with laws and regulations specifically designed to protect consumers, including loss mitigation correspondence, single point of contact notices, and annual privacy notices
  • Nationstar’s controls related to its information technology systems were under-developed. For instance, though Nationstar outsourced its IT audit function to a third-party vendor, the company was unable to provide examiners with formal documentation detailing the nature and scope of the arrangement

Additionally, the NYDFS investigation found numerous “shortcomings” in Nationstar’s origination activities.

The investigation showed deficiencies in Nationstar’s document retention practices, including “origination files for New York borrowers that lacked fundamental documents, including Truth in Lending Act disclosures, property appraisals, and borrower income documents.”

The exam also found that in approximately 900 instances, Nationstar failed to fund mortgages for New York borrowers within the required timeframe, which led to various consequences for the borrowers.

The NYDFS also said that between 2011 and 2014, the number of consumer complaints it received about Nationstar increased almost ten-fold. 

“This disproportionate increase in complaints during a time of growth reflected, in significant part, the company’s challenges in effectively onboarding and adapting its infrastructure to effectively service an ever-growing loan pool,” the NYDFS said.  “These complaints covered a wide range of concerns, including, but not limited to, errors in payment processing and improperly ordering forced-place insurance for borrowers whose voluntary hazard insurance policy had not lapsed.”

As part of the settlement, Nationstar will pay a fine of $5 million to the NYDFS.

Additionally, Nationstar is required to donate $5 million in residential real property or first-lien mortgages to nonprofit organizations to assist in the rehabilitation of vacant and abandoned properties.

According to the NYDFS, Nationstar has already made restitution of $7 million to New York borrowers in the form of payments or waived fees related to issues uncovered in the NYDFS investigation.

“The company’s failure to fully plan for risks associated with its rapid growth exposed borrowers to increased risks, including in some cases, the possibility of costing them additional money,” NYDFS Superintendent Maria Vullo said. “Today’s action ensures that consumers will be protected and that companies are held to account for their failures. I appreciate Nationstar’s cooperation in resolving this matter.”

According to the NYDFS, its examination into Nationstar’s mortgage originations found the following violations of law:

  • Failure to obtain the authorization of the Department for the company’s use of multiple domain names
  • Failure to maintain books, records and customer files in a manner required to facilitate a comprehensive assessment of its compliance with Banking Law
  • Failure to fund over 900 mortgage loans within the timeframe set forth in various loan or other documents for individual borrowers

While the examination into Nationstar’s servicing found the following violations:

  • Operation of two branch locations without the Superintendent’s authorization
  • Failure to maintain required documentation in servicing files, including, but not limited to, loss mitigation correspondence, executed origination documents, welcome and good-bye letters, single-point-of-contact notices, and annual privacy notices
  • Failure to maintain a schedule of fees on its website
  • Failure to submit quarterly reports in a timely manner
  • Failure to file multiple 90-day pre-foreclosure notices with DFS

In a statement provided to HousingWire, Nationstar said that it will be working with the National Community Stabilization Trust to provide $5 million in property donations and rehabilitation costs that will help low to moderate income families find affordable housing.

“Our commitment to keeping the dream of homeownership alive for our customers is unwavering, and we apologize to our valued customers in New York for these past issues,” said Jay Bray, chairman and CEO of Nationstar. “We are pleased to resolve this matter, and we look forward to working with NYDFS and the National Community Stabilization Trust to help many New York residents find affordable housing.”

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