N.Y. to Streamline Origination Licensing, Expand Servicing Probe
New York regulator Benjamin Lawsky said Tuesday he plans to expand an investigation into the affiliated businesses of nonbank servicers because homeowners are "at risk of becoming fee factories."
The New York Department of Financial Services also plans to improve the time and process it takes to get a mortgage license in New York. Lawksy plans to eliminate several layers of review for mortgage bankers to apply for a license or a new branch location. The agency also will be coming out with guidebooks with instructions on how to maintain a mortgages license.
Lawsky said he will be looking at the affiliated businesses of all nonbank servicers to determine if they are charging inflated prices or if their services are of low quality.
"Servicers have every incentive to use these affiliated companies exclusively for their ancillary services, and they often do," he said at the Mortgage Bankers Association's annual Secondary Market Conference in New York. "The affiliated companies have every incentive to provide low-quality services for high fees, and they appear in some cases to be doing so."
In April, Lawsky began an investigation into possible self-dealing by Ocwen Financial (OCN) and its relationships with Altisource Portfolio Solutions (ASPS), a Luxembourg-based distressed property manager and its online auction site Hubzu.
"They are not the only industry player doing this," he said Tuesday. "So you should expect us to expand our investigation into ancillary services in the coming weeks and months."
On licensing, Lawsky said his goal is to cut the current four-month wait time in half for lenders to get a license in New York.
"When I heard we were one of the slowest in the country, my reaction was to do a whole reform process and make us the fastest," he said. "I want to be number one."
Lawsky touched briefly on the chilling effect of his actions on mortgage servicing transfers. In February, he halted Ocwen's purchase of $2.7 billion in servicing rights from Wells Fargo (WFC). But he stressed that doing so did not stall all MSR transfers.
He emphasized that many servicers are doing a good job, and he prefers a "race to the top," rather than to the bottom.
"Just because we're seeing problems with certain servicers in this market and we're taking a broader look at potential issues and disincentives created, doesn't mean certain servicers aren't doing it right," he said. "What we worry about is when structures get set up where there is an incentive and some firms…can create this race to the bottom because their competitors look at them and see they are cutting corners.
"What we'd like to do is reverse that and have a race to the top," he said. "The companies that do it right should become the industry standard. Then we can be the referee that gets out of the way and lets everyone compete."
He reiterated that homeowners are at a disadvantage in dealing with servicers.
"The borrower…has little or no power in this relationship and is typically at the mercy of the servicer," he said. "Nonbank servicers have a captive (and often confused) consumer in the homeowner."
Though mortgage investors pay servicers' bills, investors and servicing trustees typically have little authority to demand that the servicer do a good job, he said.
Delinquent loans in particular provide a huge opportunity for nonbank servicer affiliates to charge fees with no oversight.
"An underwater mortgage is solicited for a short sale, for auction fees, technology fees, broker fees, referral fees and servicing fees," Lawsky said. "A foreclosed property involves a foreclosure sale, for a fee. A property that doesn’t sell in foreclosure becomes real estate owned and then sold, for many more fees."