Tag Archives: Non-Banks

Breaking news: Ocwen foreclosures frozen after National Mortgage Settlement compliance failure

As it turns out, it can get worse for Ocwen Financial. Less than one day after posting a massive loss for the first quarter of 2016, the nonbank has run afoul of the terms of the National Mortgage Settlement and is now forbidden from taking foreclosure actions on more than 17,000 loans.

According to Joseph Smith, the monitor of the National Mortgage Settlement, Ocwen is not yet back in compliance with one of the performance metrics of the National Mortgage Settlement that it failed in the second half of 2014.

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How much worse can it get for Ocwen? Nonbank posts massive loss in 1st quarter

Reports net loss of $111.2 million

Earlier this year, Ocwen Financial tried to lay the groundwork for just how poor its first-quarter financial results would be, stating in February that the nonbank expected to post a loss in 2016, but the company’s first-quarter results are even worse than expected.

Ocwen announced Wednesday after the market closed that it posted a net loss of $111.2 million (or $ 0.90 per share) for the first quarter, which was worse than consensus estimates.

The loss marks a stark reversal from the first quarter of 2015, but not a departure from the nonbank’s financial results of late.

Ocwen actually posted profits – albeit small ones – in the first and second quarters of 2015.

In the first quarter of 2015, Ocwen reported net income of $34.4 million, while in the second quarter, Ocwen reported net income of $10 million.

Those profits were undone by Ocwen’s rough third quarter, when the nonbank posted a net loss of $66.8 million.

And the results were far worse for Ocwen in the fourth quarter, when the nonbankposted a net loss of $224.3 million.

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Three major nonbank mortgage servicers; Only one is profitable

The common view that nonbanks are taking over the mortgage space from the big banks in a meaningful way is being muted by a harsh-reality report from Moody’s Investors Service.

While nonbanks continue to make decent inroads on the originations side of the business, it’s the servicing side that’s proved more of a struggle.

According to a Moody’s review of 2015 financials at the three largest US non-bank mortgage servicers — Nationstar Mortgage, Ocwen Financial andWalter Investment Management — only one was profitable.

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Elizabeth Warren pushing CFPB for more oversight of nonbank mortgage servicers

The explosive rise of nonbank mortgage servicers over the last few years happened so quickly that regulators have failed to keep up; therefore regulators need to act quickly and increase oversight of nonbanks in an effort to further protect consumers, two prominent Democrats said this week.

In a letter sent Monday to Consumer Financial Protection Bureau Director Richard Cordray, Sen. Elizabeth Warren, D-Mass, and Rep. Elijah Cummings, D-Md, call on the CFPB to increase its oversight of nonbank mortgage servicers, citing a report from theU.S. Government Accountability Office on the rise of nonbank servicers.

The GAO report notes that the share of mortgages serviced by nonbanks increased from approximately 6.8% in 2012 to approximately 24.2% in 2015, in terms of unpaid principal balance.

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SEC reportedly investigating nonbanks for sending loans to collections too quickly

Bloomberg: Ocwen and Nationstar could be targets

The Securities and Exchange Commission is reportedly investigating several nonbank mortgage servicers for potentially sending borrowers into debt collection too quickly, according to a report from Bloomberg.

The Bloomberg report, from Matt Scully, states that the SEC is probing nonbanks, including Ocwen Financial, for “prematurely unleashing debt collectors on delinquent borrowers.”

From Bloomberg:

When loans go bad, the firms can write them off and send them to outside collectors. One of the questions the SEC is probing is whether borrowers are getting enough time to make good on their home equity loans once they fall behind, the person said. A servicer may be entitled to a receive a percentage of whatever outside collectors recover, which may be higher than the usual fees it would receive, the person said. Sending loans to collectors prematurely may also cut a servicer’s costs.

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Nonbanks make up two-thirds of FHA lending


Since the crisis, banks have increasingly stepped away from mortgage lending. They are still paying up for bubble-era offenses and feel newly-imposed regulations are so strict as to be punitive. Banks made about 52% of all home loans in 2014, down from 74% in 2007, and many analysts think that share is going to go much lower.

Also read: Big banks are fleeing the mortgage market

Companies often called “nonbanks,” or “mortgage bankers,” like Quicken and Nationstar NSM, +1.63%  , are stepping into that void. Nonbanks are held to the same standards as banks for lending and servicing mortgages, but don’t have many of the same resources banks do.

If an economic downturn caused a rash of borrowers to be unable to make payments, banks low on cash could tap emergency funds through the Federal Reserve. And their deposits are protected by the Federal Deposit Insurance Corp.

But more to the point, if nonbanks come up short on liquidity, they must turn to banks for short-term financing – and it’s not clear whether such requests would be honored.

“Non-banks are at a structural disadvantage to banks,” said Chris Whalen, head of research at Kroll Bond Rating Agency and a long-time bank analyst. “The people running these businesses know what they’re doing. But no matter what they’re doing, there’s someone sitting at Wells or Citi who can pull the plug.”

Mark Zandi, chief economist at Moody’s Analytics, told MarketWatch, “I think it’s a very serious concern, not an issue for tomorrow or next year, but this should be addressed and resolved to everyone’s satisfaction because in the next crisis it will be key. In a crisis, when investors are panicked, there are going to be very reluctant to extend credit to smaller, less-established institutions, including many of the non-banks.”

Big shifts in lending since the last crisis are driving that concern. A much larger share of mortgages are now backed by the Federal Housing Agency, rather than Fannie Mae and Freddie Mac. And nonbanks make up two-thirds of FHA lending.

Date Event
2006 Countrywide Home Loans is #1 mortgage originator, with $175.3 billion and nearly 7% market share. Top originators also included American Home Mortgage, Inc., New Century Mortgage Corp, Fremont Investment and Loan. Nonbanks account for 36% of originations.
2007 American Home Mortgage and New Century file for bankruptcy
2008 Countrywide is sold to Bank of America, Fremont is sold to CapitalSource Inc.
2008 Nonbanks originations hit low of 23%
2010 Dodd-Frank Wall Street Reform and Consumer Protection Act is signed into law
2013-2014 Over a nine-month period, big banks including J.P. Morgan Chase, Bank of America, and Citigroup strike deals with the government over bubble-era misdeeds, totaling over $16 billion. Such settlements have continued, and the government has also started to pursue lenders for post-crisis wrongdoing.
2014 Nonbank originations make up 43% of the market

Fed asks: How do you regulate a nonbank like GE Capital?

WASHINGTON (MarketWatch) — Like the Reverend Mother in the Sound of Music who asked “how do you solve a problem like Maria,” the Federal Reserve is asking the public how it should regulate a nonbank like GE Capital.

The Fed invited comment Tuesday on its plan to regulate and supervise General Electric Co.’s GE, -0.52%   financing arm.

GE Capital is only one of a handful of nonbanks that have been designated as “systemically important” by the Financial Stability Oversight Council. This designation subjects the firm to greater oversight and stricter capital and leverage standards.

The Fed said that its prudential standards to GE Capital are “generally similar” to those that apply to large bank holding companies.

There are additional independence requirements for GE Capital’s board of directors and restrictions on intercompany transactions between GE Capital and its parent.

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