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Mortgage Servicers Face Washington Hammer

An example of areas of concern for the CFPB is the process of transferring of servicing from one company to another. When loan servicing rights are sold, borrowers sometimes have difficulty communicating with the new servicer and errors can be made between servicers, causing great stress for borrowers. Antonakes said to MBA members, "We expect you to pay exceptionally close attention to servicing transfers and understand we will as well."

Antonakes also said servicers have had "more than a year to work on implementation" of new rules. Here's his detailed description of the CFPB's new rules for the foreclosure process:

For consumers in trouble, getting the runaround is not just frustrating, it can be disastrous. So our rules require mortgage servicers to let consumers know about available options to save a home or to work out a problem in making payments. We are also restricting "dual tracking" by barring servicers from starting foreclosure proceedings until the borrower has been delinquent for more than 120 days. If the borrower timely submits a complete application for loss mitigation more than 37 days before a scheduled foreclosure sale, no foreclosure sale can occur until all other options available through the owner of the loan have been considered, such as loan modifications, short sales, and deeds-in-lieu of foreclosure. And servicers cannot foreclose on a property once a loss mitigation agreement has been reached, unless the borrower fails to perform under that agreement. We expect these simple protections to help prevent needless foreclosures, which is best for borrowers, lenders, and our entire economy.

Antonakes went on to say that the CFPB had already "ordered the return of more than $1 billion to consumers and mandated another $2 billion in foreclosure relief."

So what will the increased scrutiny of mortgage servicers by the CFPB and other regulators mean for the formerly high-flying mortgage servicing sector?

FBR analyst Paul Miller, who is generally upbeat about mortgage servicers as investments, wrote in a client note on Thursday, "We continue to believe that specialty servicers are much better prepared to meet the servicing goals outlined and should continue to benefit from servicing transfers. However, the increased scrutiny, especially on transfers, could certainly become a speed bump."

Miller wrote that Antonakes' speech was "notable in its aggressive tone, which was outside the norm for speeches by CFPB officials and in stark contrast to recent speeches by CFPB officials promising leniency for originators adopting to new mortgage origination rules."

Looking ahead, the analyst still feels the trend will be for more large transfers of servicing rights to be made, to the benefit of the non-bank servicers, but that the transfers will take much longer.

And there's another dark regulatory shadow on the horizon. Fannie Mae and Freddie Mac, which together purchase the great majority of newly originated mortgage loans in the United States, pay an annual servicing fee of a quarter point to loan servicers. Federal Housing Finance Agency Director Mel Watt is considering lowering the servicing fees paid by Fannie and Freddie. That would instantly lower the value of mortgage servicing rights for banks and non-bank servicers alike, and also "could make it harder for smaller servicers to have the economy of scale to service loans," according to Miller.

As part of the regulatory pile-on against the banks, Rep. Maxine Waters (D., Calif.) -- the ranking member of the House Financial Services Committee -- has "added her voice to the debate in a letter to regulators asking for a review of servicing transfers to non-banks," according to Miller.

Shares of Ocwen were down 3.8% in late morning trading, to $34.91.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.
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