New York's financial regulator on Wednesday said the explosive growth of non-bank mortgage servicers is a "troubling trend" that must be confronted "before more homeowners get hurt."
Benjamin Lawsky, superintendent of New York's Department of Financial Services, said that four of the top 10 firms managing mortgages in the United States are non-banks, whereas all were banks in 2011, and that the four service more than a trillion dollars in loans.
"We have serious concerns that some of these non-bank mortgage servicers are getting too big, too fast," Lawsky said in prepared remarks for Wednesday's New York Bankers Association Meeting and Economic Forum.
"We are seeing far too many struggling homeowners getting caught in a vortex of lost paperwork, unexplained fees and avoidable foreclosures," he said.
Lawsky said servicers are buying up mortgage-servicing rights due to stronger capital requirements for banks following the mortgage crisis. He said banks are getting less credit for the rights on their balance sheets and rather than building up stronger buffers, they are offloading them to the more lightly regulated servicers.
The regulator took aim at one unidentified firm that he said quadrupled in size in about a year and now services more than $400 billion in loans. He said the firm said it could service distressed loans at a 70 percent lower cost than the rest of the industry.
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Lawsky said regulators have to ask whether such so-called efficiencies are "too good to be true."
A spokesman for Ocwen, Richard Gillespie, did not immediately respond to an email for comment.
Last Thursday, Ocwen said New York's Department of Financial Services halted its purchase of servicing rights on a portfolio of mortgages from Wells Fargo. The regulator is concerned that Ocwen does not have the ability to handle the load, a person familiar with the matter said.