In a speech delivered to the Mortgage Bankers Association 2014 National Secondary Market Conference, Benjamin M. Lawsky, Superintendent of New York’s Department of Financial Services, targeted nonbank mortgage servicers with high-level yet pointed remarks. Perceiving nonbank mortgage servicers to be “lightly regulated,” Mr. Lawsky expressed concern that a “potential race to the bottom” could develop among servicers looking to minimize costs while scaling up capacity. Though acknowledging the benefits of technology and innovative servicing models, he emphasized the need for servicers to ensure they have the human capital in place to handle increasing volumes of servicing rights acquired from banks. In an apparent knock on overseas outsourcing of servicing functions, Mr. Lawsky referenced problems associated with “loan files strewn around the globe.” Mr. Lawsky also mentioned a focus on “ancillary services” (e.g., inspection, foreclosure and REO management services) that affiliates of mortgage servicers often provide, stating they posed “potential for conflicts of interest and self-dealing” at the expense of homeowners and investors, who purportedly “are at risk of becoming fee factories.” While criticizing the nonbank mortgage servicers, Mr. Lawsky did not mention any specific statutes or regulations, or any particular entity that he suspected of violating laws.
Superintendent Lawsky’s remarks are only the latest indication of increased regulatory scrutiny for this industry sector. In December 2013, the CFPB and state regulators entered into a consent order with a nonbank mortgage servicer resolving alleged unfair, deceptive and abusive acts and practices (see December 23, 2013 Alert). Congresswoman Maxine Waters also urged the OCC to ensure borrowers are not adversely affected by servicing transfers from bank to nonbank servicers (see March 4, 2014 Alert). And earlier this month, the Financial Stability Oversight Council’s 2014 Annual Report discussed the risks it perceived from the growth of the nonbank mortgage servicing sector (see May 13, 2014 Alert).
IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this informational piece (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.