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Massive MSR Sales Prompt Servicer Warnings

Following a string of super-sized sales of mortgage servicing portfolios, home-loan servicers are being warned about their legal obligations in a transfer of servicing.

Several MSR sales have been recently reported as large lenders look to unload unprofitable servicing and growing firms take advantage of the opportunity.

Nationstar Mortgage Holdings Inc. said in January that it agreed to acquire mortgage servicing rights on around 1.3 in residential loans for $215 billion from Bank of America Corp. The Lewisville, Texas-based lender has completed 344 servicing transfers since 2008.

With its recent acquisition of Homeward Residential Holdings Inc., Ocwen Financial Corp.’s total servicing portfolio grew to around $204 billion. In addition, Ocwen Loan Servicing LLC’s pending acquisition of ResCap assets is expected to increase Ocwen’s servicing portfolio by another $126.6 billion.

Walter Investment Management Corp. said last week that it acquired MSRs on $132 billion in Fannie Mae loans from bankrupt Residential Capital LLC and BofA.

Concerned about the massive volume of MSRs changing hands, the Consumer Financial Protection Bureau issued a bulletin Monday warning lenders about their legal obligations during loan transfers between mortgage servicers. The agency promises to make servicing transfers a focus of its supervisory activities.

The bulletin follows new servicing rules issued last month by the CFPB.

“If servicers are not fulfilling their obligations under the law, the CFPB will take appropriate actions to address these violations and seek all appropriate corrective measures, including remediation of harm to consumers,” Monday’s notice stated.

Servicers are advised not to lose paperwork, lose track of a borrower’s loss mitigation plans or hinder a distressed borrower’s chances of avoiding foreclosure.

“Consumers should not be collateral damage in the mortgage servicing transfer process,” CFPB Director Richard Cordray said in the notice. “This guidance directs all mortgage servicers, both banks and nonbanks, to follow the laws protecting borrowers from the risks of such transfers, and makes clear that we will be monitoring them for compliance.”

But the relatively new regulator also noted that servicing transfers can be positive for consumers. An example cited was when servicing is transferred to specialty servicers that have better service.

The Federal Housing Finance Agency and the Federal Housing Administration issued separate statements in support of the CFPB’s guidance.

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