Interim Servicers Under Fire

Nonconforming lenders that sell their loans to Wall Street conduits are starting to express concerns about the quality of "interim" servicers.

One West Coast-based lender told National Mortgage News that he received a buyback notice on a mortgage he sold to an investment banking firm in the fall, but after contacting the consumer learned that the loan should have been current.

The executive, requesting his name not be used, said shortly after he received the buyback notice, "The loan payments for September, October and November all were posted on the same day - on Nov. 15."

He added, "All the paperwork was sitting on a desk in accounting or somewhere."

Executives who work in the nonconforming niche, speaking on the condition of anonymity, said some Wall Street firms have been so overwhelmed by their subprime and alt-A volumes that they aren't paying close enough attention to the newly originated loans they are buying.

One executive who works for at top-five-ranked warehouse provider described the back office of some Wall Street firms "as a total mess." However, no one is suggesting yet that the situation is a crisis. (According to figures compiled by this newspaper, subprime and alt-A funders originated a record amount of loans last year even though conventional production declined.)

A subservicing executive said he has heard "many stories where it appears the consumer never made the first payment and then eventually it gets posted."

He noted that some interim servicers "are better than others" but he also criticized Wall Street conduits for being "sloppy" about how they handle their volumes.

One interim servicer that has received applause from sellers is GMAC Mortgage of Horsham, Pa. "They've received good marks," said an executive who has worked with them.

The problem, though, only affects lenders that are selling their loans "servicing-released" to the conduits. These tend to be small- to medium-sized nonconforming lenders that do not have the ability to service. The loans are interim-serviced until the servicing is sold to a third-party servicer or a permanent subservicing arrangement is worked out.

But the executive who received the buyback notice in the fall said he is going to implement his own solution. "I'm going to start interim servicing for the first 90 days," he said. "I've bought a system and hired a few people."

The situation isn't lost on Wall Street either. Several investment banking firms that are in the conduit business - Merrill Lynch, Goldman Sachs, among others - have bought servicers/subservicers or are contemplating the idea.

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