The Federal Housing Finance Agency said that the nonbank mortgage servicers processing payments on delinquent loans may lack sufficient funding and could pose a financial risk for Fannie Mae and Freddie Mac, which guarantee the mortgages, The Wall Street Journal reported July 1.
According to the FHFA Inspector General’s review of the nation’s 30 largest servicers, 17 percent of the mortgage-servicing market was held by nonbank servicers at the close of 2013. The review noted that that number is up from 9 percent at the close of 2012.
While banks that originate mortgages and sell them to Fannie and Freddie usually also collect the payments on those loans, an increasing number of nonbank servicers are getting into the market, particularly to handle troubled loans.
However, the Inspector General’s review noted that some nonbank servicers use short-term financing to buy servicing rights from banks and have limited capital reserves, which could cause a financial disaster if the market goes south.
The Inspector General’s review concluded that the FHFA has “not established a risk-management process or overall oversight framework to handle some general risks posed by nonbank special servicers,” the Journal reported.
There have been a growing number of complaints alleging that nonbank servicers are less willing to work with borrowers to modify troubled mortgages and help them avoid foreclosure and have been accused of cutting costs to the detriment of the borrowers they serve, the Journal reported.
In February, New York’s top financial-services regulator Benjamin Lawsky stopped the sale of servicing rights on $39 billion in loans from Wells Fargo to Ocwen Financial Corp. over doubts the servicer could handle additional loans. His office also has expressed concern about the servicing practices of Nationstar Mortgage.
The review advised the FHFA to provide guidance to Fannie and Freddie on risk management related to the servicing of troubled loans.