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New York Reg to Expand Probe into Non-Bank Practices

The New York regulator who earlier this year launched a probe into the practices of non-bank mortgage servicers revealed Tuesday he plans to expand his investigations to include their relationships with affiliated firms.

Delivering remarks at the Mortgage Bankers Association's 2014 National Secondary Market Conference, Superintendent Benjamin Lawsky of New York's Department of Financial Services said the agency plans to dig into fee-based ancillary services at non-banks such as Ocwen and Nationstar.

While Lawsky said there's "nothing inherently wrong" with companies and affiliates providing ancillary services—ranging from debt collection to loan sales—he asserted that a lack of regulatory oversight up to this point has resulted in "potentially conflicted arrangements" between servicers and their affiliates.

"Servicers have every incentive to use these affiliated companies exclusively for their ancillary services, and they often do," he said. "The affiliated companies have every incentive to provide low-quality services for high fees, and they appear in some cases to be doing so."

Lawsky's remarks are the latest in a saga that has played out since February, when the regulator halted a mortgage servicing rights (MSR) transaction between Wells Fargo and Ocwen, citing concerns about the latter company's rapid growth over the year and allegations of customer abuse.

He followed that up with letters to both Ocwen and Nationstar inquiring about their practices and their relationships with affiliated firms.

Both servicers have exploded onto the scene, quickly climbing into the ranks of the top five servicing companies as they purchase MSRs from banks looking to offload their portfolios to a more lightly regulated operation.

While both Ocwen and Nationstar have pledged to work with Lawsky's office to resolve his concerns, they maintain no wrongdoing has been committed.

Still, Lawsky remains unconvinced.

"Regulators have a responsibility to ask whether the purported 'efficiencies' at non-bank mortgage servicers are too good to be true," he said.


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