I suppose it was only a matter of time. When the government settled early last year with Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, and Ally Financial over foreclosure abuses, these lenders were not only instructed to use the $25 billion to assist fraudclosure victims. They were also ordered to revamp their servicing standards, which were also fraught with problems.
Since then, many banks, namely Bank of America, have been selling off their mortgage servicing rights in order to better comply with new capital rules. The beneficiaries of these sales are mortgage servicers such as Nationstar Mortgage (NYSE:NSM), Walter Investment (NYSE:WAC), and Ocwen Financial (NYSE:OCN), all of which have been scooping up these MSRs like there's no tomorrow.
These companies are growing by leaps and bounds, so I wasn't particularly surprised to see that the Consumer Financial Protection Board has been hounding Ocwen in regards to its compliance with the servicing terms contained in the National Mortgage Settlement.
Although Ocwen states that it is complying with all requests by regulators, it also notes in its 10-K form that the CFPB, along with the state Attorneys General involved in the settlement and the Multi-State Mortgage Committee, have asked Ocwen to contribute to a consumer relief fund. The servicer declined.
Not the end of the story
Ocwen is the largest of the mortgage servicers, so it's not surprising that they are being squeezed first. It is also not unexpected because these companies are servicing a large portion of existing mortgages. Despite the company's assertion that it is against forking over any contributions, Ocwen acknowledges that it may be liable for up to $135 million under the proposal. The servicer also concedes that its reluctance to pony up may end it in a court of law. Ocwen also reported that it had received two civil investigative demands from the Dept. of Justice regarding its new acquisition , Homeward Residential, seeking to resolve questions regarding that unit's prior participation in the government's Home Affordable Mortgage Program.
Ocwen certainly has its plate full, but the other servicers are likely to be next. If Nationstar and Walter also opt out of the consumer relief pool, there may well be a whole lot of legal action going on very soon in the mortgage servicing industry.