N.Y.'s Lawsky Now Targeting Mortgage Servicer Nationstar

Jin Lee/Bloomberg

Benjamin Lawsky, head of New York's muscular Department of Financial Services, is raising concerns about the explosive growth of mortgage servicer Nationstar, claiming the company may have "capacity issues that put homeowners at risk."

Lawsky sent a letter Wednesday to Jay Bray, the president and CEO of Nationstar, questioning the Lewisville, Texas, mortgage servicer's rapid growth and ability to service loans for borrowers in New York.

Nationstar apparently failed to fund 141 New York loans in September, "due to insufficient liquidity," Lawsky wrote.

"We have received hundreds of complaints from New York consumers about your company's mortgage practices, including problems related to mortgage modifications, improper fees, lost paperwork, and numerous other issues," Lawsky wrote in the letter. "Our department has significant concerns that the explosive growth at Nationstar and other nonbank mortgage servicers may create capacity issues that put homeowners at risk."

Last month, Lawsky created a stir in the mortgage servicing industry when Ocwen Financial's put an indefinite hold on the $2.7 billion purchase of a mortgage servicing portfolio from Wells Fargo. Ocwen did so at Lawsky's request, who alleged the nonbank servicer has grown too quickly.

Nationstar and other nonbank servicers have been on an acquisition spree. The number of loans Nationstar serviced jumped 123% last year to $283.3 billion. A review of fourth quarter servicing reports by Lawsky found an even faster pattern of growth in New York, where Nationstar's volume tripled in the past year. Nationstar now services 73,489 loans in New York totaling $14.3 billion.

In a prepared statement, Nationstar’s CEO, Jay Bray, said: “We intend to comply fully and transparently with Mr. Lawsky’s request. … We have a proven track record of helping homeowners succeed and avoid foreclosure, and we welcome the opportunity to share this information.”

Lawsky asked for a detailed breakdown of Nationstar's servicing portfolio, including the number of loans that are in default and foreclosure and whether they are owned by private-label investors or backed by Fannie Mae, Freddie Mac or the Federal Housing Administration. He also requested an organizational chart of Nationstar's top officers, the number of employees working in various departments, including customer service and collections, as well as the number of loans assigned to each employee.

He also asked that Nationstar provide a description of its acquisitions last year that were over $1 billion; its policies and procedures for loan modifications and short sales; a copy of the form letter sent to borrowers approving a trial modification; and its policies for accepting loans transferred from other servicers including how it treats late payments from recently transferred borrowers.

And the letter also requests a list of Nationstar's third-party vendors and a description of the services provided by each company. The letter specifically names Solutionstar (a Nationstar subsidiary), New Residential Investment Corp. and Auction.com.