In a press release issued by Fitch Ratings, the company comments that the past year has seen a "sea change" in who is servicing severely delinquent U.S. mortgage loans—and how they are being serviced. Fitch found that 2013 saw many portfolios of non-agency residential mortgage-backed securities (RMBS) mortgage servicing rights (MSR) move from banks to non-bank servicers.
Fitch found, "In fact, non-banks now service nearly three-quarters (72%) of non-agency deals. Large non-bank servicers such as Ocwen and Nationstar have absorbed much of this product, with their total servicing portfolios growing by 250% and 100%, respectively, over the past 12 months."
The shift in servicing portfolios has had a large impact on existing RMBS. According to Managing Director Roelof Slump, servicing transfers from banks to non-banks reveal key strategic goals between the two types.
"Non-bank servicers are proving to be more aggressive in their monitoring of principal and interest advances," Slump said. "Non-bank servicers are also showing themselves to be more proactive in their use of loan modifications and are seeing shorter overall timelines."
These differences in strategy affect both monthly cash flow and ultimate loss severities, according to Fitch.
In light of the recent completion of the National Mortgage Settlement Agreement, new rules went into effect that impact all mortgage servicers. The previous Settlement left out non-bank servicers, who now have to abide by the Consumer Financial Protection Bureau’s (CFPB) new regulations.
"This in turn placed non-banks under greater scrutiny than what they had seen previously," Fitch said.
Fitch notes that new oversight will yield higher fixed costs, as technology and process enhancements are made in order to comply with the new guidelines. This increase in cost will push non-bank servicers to grow their portfolios, and Fitch suggests “strong forces are still in place to further incent both outright MSR sales and subservicing arrangements, thus heightening scrutiny of such transactions."
Conversely, commercial banks remain incentivized to control the overall size of their portfolios, and reduce their servicing of underperforming loans.