A few weeks after the Government Accountability Office (GAO) published a report saying that non-bank mortgage servicers need more oversight from the Federal Housing Finance Agency (FHFA) and the Consumer Financial Protection Bureau (CFPB), another federal watchdog has joined the GAO in calling for the federal government to keep a closer eye on non-bank servicers.
In its quarterly report to Congress, the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) expressed the opinion that the federal regulators should more closely watch non-bank servicers because of the servicers’ increased participation in TARP’s signature foreclosure prevention program—the Home Affordable Modification Program, or HAMP—over the past six years.
Non-bank servicers have more than quadrupled their market share in the nation’s $9.9 trillion worth of outstanding mortgage loans since 2012. According to the GAO, non-bank servicers’ market share has rose from 6.8 percent in 2012 up to 24.2 percent by June 2015. According to SIGTARP, there has been a corresponding increase in non-bank servicers’ role in HAMP; six of the 10 largest HAMP servicers were large banks in 2010, the first full year of HAMP. That calculated to about 65 percent of HAMP loans serviced by large banks. Now, non-banks service 56 percent of loans modified through HAMP, and the large bank share has declined to 39 percent.
Treasury pays mortgage servicers for every homeowner who receives a permanent loan modification through HAMP, which has made HAMP and related programs a lucrative venture for non-bank servicers. To date, according to SIGTARP, non-bank servicers have received $1.1 billion in Federal TARP money from Treasury through HAMP.
The reason why SIGTARP believes that non-bank servicers need more federal oversight is because without the same level of oversight those loans receive from bank servicers, the loans are considerably riskier.
“As non-bank servicers increase their role in HAMP, the risk to homeowners has also increased.”
Special Inspector General for TARP
“As non-bank servicers increase their role in HAMP, the risk to homeowners has also increased. Non-bank servicers have less federal regulation than banks that service mortgages,” the SIGTARP report stated. “Some of the largest non-bank servicers have already been found to have violated laws in their treatment of homeowners, and have been the subject of enforcement actions by the federal or a state government. Some of the largest non-bank servicers also have been found to have violated HAMP’s rules in their treatment of homeowners. This increased risk to homeowners must be met with increased oversight to ensure that homeowners are treated fairly, and that HAMP and its related programs are effective and efficient.”
According to SIGTARP, many homeowners were harmed when HAMP’s rules were not followed during the transfer of the loan from one servicer to another. Some of the problems that delay, decrease, or even deny the relief provided to HAMP-eligible homeowners that occurred were delays, omissions, and miscommunications between servicers. One problem that can be particular harmful to borrowers waiting for HAMP relief is when the HAMP application is “lost”, according to SIGTARP, because the borrower’s financial hardships continue while the determination as to their eligibility for HAMP is delayed.
“Strong oversight is critical to ensure that these non-bank servicers follow HAMP’s rules and the law, give homeowners a fair shot at HAMP, and administer HAMP effectively and efficiently,” the report stated. “Violations of the law and HAMP rules raises risks to homeowners. With less regulation, non-bank servicers making decisions in HAMP need strong oversight to ensure homeowners and this TARP program are protected.”
HAMP, which began in February 2009 in response to the foreclosure crisis, is scheduled to expire at the end of 2016.
Click here to see the complete SIGTARP report. The section on non-bank servicers begins on page 63.