"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."
His remarks seemed to be directed at Ocwen Financial, which is the fourth-largest mortgage servicer, behind Wells Fargo, JPMorgan Chase and Bank of America.
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.
Other non-bank servicers among the top 10 include Nationstar Mortgage, PHH Mortgage, and Walter Investment Management.