LPS finds new business from mortgage servicer crackdown
More mortgage servicers signed up to use Lender Processing Services (LPS) technology to comply with new requirements from the recent regulatory consent orders. Last year, foreclosure problems surfaced in courts across the country, leading to moratoriums, federal and state investigations. In April, the Federal Reserve, the Office of the Comptroller and the Currency and the Office of Thrift Supervision settled their investigations with 14 mortgage servicers. LPS also was required to sign a consent order with the Fed for executing and recording "numerous affidavits, assignments of mortgages, and other mortgage-related documents that contained inaccurate information." LPS was forced to implement new oversight plans to manage its processes. The legal and regulatory costs from the consent orders surpassed the company's original estimates, LPS executives told investors Tuesday morning. Corporate expenses nearly doubled from one year ago to $33 million in the second quarter, when the company reported a 73% drop in earnings. But the consent orders also prompted new business. LPS interim CEO Lee Kennedy said six new servicers elected to use the LPS platform known as MSP in the last 90 days. Of the top-14 mortgage servicers in the country, 13 already use the platform, and one of the three largest firms agreed to process home equity line of credit loans using the software. Wells Fargo (WFC) gave a "firm commitment" to use the LPS Desktop software for managing and streamlining processes, according to executives. The pipeline of incoming customers is at its highest level in over three years, LPS said. "We believe MSP will increasingly be seen as a flight to safety," Kennedy said. Still, default services revenue is on the decline at LPS. Two years ago, this segment was generating roughly $300 million a quarter. Now that's closer to $210 million, Kennedy said, adding the business model was built for higher volumes now deeply affected by continued loss mitigation delays. "While we're at this current holding pattern, we are not at the optimal volume of foreclosures for our default services business," Kennedy said. "We should be having heightened volumes." Write to Jon Prior. Follow him on Twitter @JonAPrior.