Who Owns My Loan? – How consolidation in the mortgage industry will affect you

confused homeowner help

confused homeowner help

As if homeowners weren’t under enough duress, they now have to contend with the very real possibility of their loan being sold off in what is best described as a fire sale!

 In the past few weeks the mortgage industry has seen some major consolidation among loan servicing companies.  Why? Well some companies, major ones at that, have decided that they have had enough of dealing with the difficulties involved with servicing loans that were originated during the “pre-housing bubble burst”  frenzy.

It appears that troubles such as modifications, short sales, deed-in-lieus, bankruptcies, and foreclosures, coupled with the government mandated compliance issues, are just too costly to make loan servicing a profitable business venture when done at any level other than in mass quantity (economies of scale theory at play here).

Before I go any further I want to reiterate that what is being sold here is not the actual note tied to the property (in most cases), but the rights to service those notes.  Servicing the note is a unique position in which these large institutions essentially play a middle man between the homeowner and the investor, who owns the note.  While there are different types of agreements for remuneration, the basis of the relationship is similar to a collection company: they either take a portion of the payments or the are paid a fee for the servicing based on time.

Most homeowners are unaware that the company/bank/institution to whom they address their monthly mortgage payment is generally not the owner of their mortgage but in fact a servicer.

So who would want to purchase more “trouble”?  Well, in order to reach a quantity high enough for a servicer to make any decent money they need a huge amount of loans to service.  The two companies that have really emerged as the front runners in the race to acquire as many servicing companies as possible are:  Nationstar and Ocwen.

Haven’t heard of them?  I am not surprised.  These two companies have really been under the radar up until about two years ago, and have since been taking off!

Just two days ago Ocwen won a bidding war against NationStar, and Berkshire Hathaway (Warren Buffett’s leviathan of a company), for Residential Capital LLC’s Loan Servicing Unit.  They managed to secure what was one of the largest originators of mortgages in 2006, for a mere $3 Billion dollars; beating out Nationstar’s bid of $2.3 Billion.

Despite Nationstar’s aquisition of over $93.3 billion in mortgage servicing contracts, just during the second quarter of 2012, Ocwen still remains the largest independent non-bank servicer.

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Who will be affected?

It is hard to say at this point, as the time it takes to process and take over the servicing for such large quantities of loans is quite long, but a large portion of this country could be cutting their checks to a different name in the next year or so.

What is known is that approximately $60 billion of the $93.3 billion Nationstar spent in the second quarter was directly purchased from Bank of America and Aurora!  Therefore the likelihood of having a new servicer is increased considerably if you are in default and your servicer is one of those two.

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How will they be affected?

While the ultimate intent of these two institutions is most likely to take a nonperforming loan and make it perform, the methods by which they do this could be significantly different.  Allow me to ask you a question: do you care as much about something that you spent $2 on vs something you paid $10 for?  Of course not.  Furthermore the opportunity to make a large return on this investment is reason enough to encourage less than decent collection/foreclosure tactics.

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While only time will tell how this all unfolds for homeowners that are underwater and/or behind on their mortgages, it doesn’t suggest that they must sit idly by and wait… In fact quite the opposite.  I think it is a strong reason to consider one’s options and weigh the benefits of taking action now versus being reactive and waiting until you have a servicer who wont even take your phone calls.

If you think I am being overly dramatic about the doomsday situation that is one of these servicers taking over, please refer to the thousands of horror stories that can be found by simply “googling” either company’s name.

Check back for updates as this story unfolds.

-JJM

 

About John Maseredjian

John is the Vice President here at JohnHart, and as such is responsible for managing and directing the firm towards obtaining its ultimate goals. He is also one of our main contributors on the Gazette, and a licensed real estate agent. (please see his agent page on the main site for more information.)

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