Nationstar Leads Servicer Plunge as Probes Widen: Mortgages
By Jody Shenn and Kathleen M. Howley
On March 5, Benjamin M. Lawsky, head of New York’s Department
of Financial Services, requested detailed information about the firm’s
servicing performance and staffing after receiving hundreds of complaints from
consumers about mortgage modifications, improper fees and lost paperwork.
More investors in U.S. mortgage servicers lost faith in the
firms yesterday as quarterly results highlighted their struggles to expand into
businesses, control costs and address issues raised by regulators.
Nationstar
Mortgage Holdings Inc. (NSM) plunged a record 22 percent
yesterday, increasing its losses this year to 25 percent. Walter Investment Management Corp. (WAC)tumbled 21
percent, leaving it down 51 percent in 2014. Ocwen Financial Corp. (OCN), the largest nonbank servicer,
has fallen 61 percent this year.
The firms, which collectively manage about $1 trillion of
home loans, gained Wall Street’s favor after the housing crash by focusing on
servicing soured mortgages. Now,
their challenge of moving past that receding business is becoming clear as
regulators investigate whether the three companies mistreated customers. Ocwen
may face settlement costs in New York over its handling of loan modifications,
and Walter Investment has put aside money amid investigations in states
including California.
“The nonbank servicers have become the next villains in the
post-financial-crisis fixation on finding someone to blame,” said Jaret
Seiberg, an analyst at Guggenheim Securities in Washington. “All these investigations
are creating a much more expensive environment and making it harder for them to
make money.”
Nationstar, the No. 2 nonbank servicer, is controlled by
Fortress Investment Group LLC. The private-equity and hedge fund manager bought
Lewisville, Texas-based Nationstar in 2006, spending about $400 million of
equity, and boosted its investment to $849 million in 2007 to shore up the
company’s finances when the mortgage market deteriorated. The plummet in
Nationstar’s shares yesterday cut the value of Fortress’s 74.5 percent stake to
$1.89 billion from $2.42 billion. Fortress spokesman Gordon Runte didn’t return
a call seeking comment.
Nationstar and Tampa, Florida-based Walter Investment, the
third-largest nonbank servicer, have been trying to expand mortgage lending as
the business of servicing and modifying bad loans has declined during the
housing recovery. Mortgage originations at both firms failed to match the
expectations of Keefe Bruyette & Woods Inc. analysts led by Bose
George.
No Guidance
All three companies also originate loans. Nationstar made
$4.1 billion in loans in the third quarter, down from $4.4 billion a year
earlier, the company said yesterday. Nationstar’s Solutionstar unit, which
provides real-estate services such as appraisals and a website used to auction
homes, also failed to match the revenue expectation of analysts.
Nationstar’s per-share earnings fell 26 percent from a year
ago. Analysts expected a gain of 2.8 percent, according to the average of 15
estimates in a Bloomberg poll. Nationstar said yesterday that it would no
longer provide earnings guidance.
John Hoffmann, a Nationstar spokesman, declined to comment on
Lawsky’s request and yesterday’s share drop.
“We have plenty of flaws and we have things we’re always
working to improve on, but we take this very seriously and we have spent a lot
of time with regulators,” Chief Executive Officer Jay Bray said on a call with
analysts yesterday. “We think we are pretty aligned with what they are focused
on.”
Buying Rights
The company said it is investing in a feedback portal to
track and analyze complaints and is improving its communications with
customers.
“The fact that Lawsky is allowing Nationstar to do deals - -
it would make me very surprised if he had something waiting in the wings that
is going to be negative,” said Benjamin Chittenden, director of equity research
at New York-based Oppenheimer & Co.
Ocwen, which hasn’t bought any rights since Lawsky blocked
its $39 billion deal with Wells Fargo & Co. in February, held $411.3
billion in the third quarter. That’s a drop of $53.4 billion from the start of
the year from so-called runoff as people paid off mortgages. Banks don’t want
to risk a confrontation with Lawsky by selling servicing rights to Ocwen until
the matter is settled, Chittenden said.
Backdating Letters
Lawsky, who has sent Ocwen five letters raising concerns
about its practices, revealed last month that the company had backdated
thousands of loan modification denial notices. That left borrowers with no time
to appeal the decisions.
Ocwen apologized, saying the backdating was an inadvertent
software error, and appointed an independent investigator to look into the
matter. Ocwen said it has set aside $100 million for possible settlement
costs.
Walter Investment, which administers loans through Green Tree
Servicing, said revenue fell 25 percent in the third quarter from a year
earlier. The company yesterday lowered its core earnings forecast for 2014 to
$5 a share from a range of $5.25 to $6.25.
Legal Charges
The company said it faced an “elevated tax rate” after being
unable to deduct a writedown to the value of its reverse-mortgage unit in the
previous quarter. The firm also recorded a $37.2 million charge related to
“legal and regulatory matters” as it disclosed a subpoena from California’s attorney general.
The mortgage servicer “did not see it as out of the ordinary
that the information request would come” via a subpoena, Vice Chairman Denmar
Dixon said yesterday on the earnings call. “It’s a broad inquiry, and that’s
kind of standard for the sector.”
Whitney Finch, a vice president at Walter Investment,
declined to comment on yesterday’s share performance.
The subpoena was issued amid an investigation by several
states and the Office of the United States Trustee, which have expressed
concerns over the firm’s practices including its handling of bankruptcy-related
matters. Dixon said his firm is in constant dialog with all the
regulators.
“The regulatory costs are increasing not decreasing,” Paul
Miller, an FBR Capital Markets analyst, said.
To contact the reporters on this story: Jody Shenn in New
York at jshenn@bloomberg.net; Kathleen M.
Howley in Boston at kmhowley@bloomberg.net
To contact the editors responsible for this story: Vincent
Bielski at vbielski@bloomberg.net Rob Urban
We are always here to help...
Dana Shafman
Managing Member
Nationstar
Mortgage Holdings Inc. (NSM) plunged a record 22 percent
yesterday, increasing its losses this year to 25 percent. Walter Investment Management Corp. (WAC)tumbled 21
percent, leaving it down 51 percent in 2014. Ocwen Financial Corp. (OCN), the largest nonbank servicer,
has fallen 61 percent this year. 
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