Best Foot Forward

Contest
Competitor
Analysis in the Mortgage
Servicer Market Trends for last 5 years

Team EMI
Abhinav Abhay Jain| Aman Bhatnagar| Somya Sheshank | Sriram Raja| Varun |
Venkatakrishnan N

Securitization Chain and Role of Mortgage Servicers

Primary Market

Borrowe
r

KEY PLAYERS

Originat
or

Banks
Brokers

Insurer

Secondary Market
Mortgage Servicing Rights

Invest
or

Servic
er

Banks
Bank of America
Wells Fargo
Chase
Citi

Non Banks
Ocwen
Nationstar
Walter
PHH Mortgage

Agencies

Agencies
Pension Funds
Mutual Funds
Foreign
Depositories

Mortgage Servicers responsibilities include:

Collecting borrowers mortgage payments & depositing those funds into custodial accounts
Investor accounting & reporting and maintaining remittance schedule
Safekeeping loan documents
Collecting & holding borrower funds in escrow to pay property taxes, insurance
premiums etc
Obtaining payment on delinquent loans, managing short sale & foreclosure activities
Revenue sources of a typical mortgage servicer are:
Servicing fees as ad valorem to outstanding mortgage balance, declines over time as
mortgage balance amortizes.
Interest earned from the escrow balance that the borrower maintains with the servicer
Float earned on the monthly mortgage payment
Ancillary income from a)Forlate
fees b) selling mailing lists c) From portfolio of borrowers
Best Foot Forward Competition at Ocwen Financial Solutions only and may not be used without
permission

Trend: Significant growth opportunities for nonbank

mortgage servicers due to mass transfers (offloading)
of MSRs from banks

Top 10 players in Mortgage Servicing Industry Facts

Since 2013, 5 of top 10 servicers are nonbanks (NB)
Market Share in 2011
in $9.4 trillion market as of 2014
19%
NB firms held 17% market share at start of 14, up
32%
from 6% in 11
30%
4%
From 10 to 14, Ocwen & Nationstar have grown
4% 9%
2%2%
350% & 290%
Since 2012, banks have been reducing their balance
of Mortgage Servicing Rights (MSRs)
Bank of America has less than halved its servicing
Wells Fargo
Chase
Bank of America
portfolio
Citi
US Bank
Ocwen (NB)
Nationstar (NB)
Walter (NB)
PHH Mortgage (NB)
No. of loans per employee for banks have
Quicken Loans (NB)
decreased from 800 to 500, while nonbanks have
Market Share in 2014 (Q1)
Causes
seen a steady average of 275
Higher
of distressed
canits
lead
to foreclosure
During no.
2012-13,
Ocwenloans
doubled
taskforce
(5000
31%
17%
logjams
modification
systems,
handling&6 poor
lakh loans
worth $94.3
billionmaking
in 2012the
to
3%
process
difficult for
10000 handling
10banks
lakh loans worth $173 billion in
14%
4%
Regulatory
encouragement for banks & Govt.
2013)
7%
4% 7%
8% 5%
Sponsored Entities (GSE) to transfer distressed loan
servicing to speciality servicers
Basel III made the cost of holding on to servicing
rights highly capital intensive for banks, at the same
Wells Fargo
Chase
Bank of America
time
opening
window
of opportunity
Key
Insight:
With up
banks
reducing
their share for
in
Citi
US Bank
Ocwen (NB)
Nationstar (NB)
Walter (NB)
PHH Mortgage (NB)
unaffected
speciality there
servicersisto take
load off
servicing
industry,
highthe growth
Quicken Loans (NB)
the banks, thereby
reducingservicers,
concentration
risk
opportunity
for speciality
specially
in
Source: Nonbank Specialty Servicers: Whats the big deal? by
For Best Foot Forward Competition
at Ocwen Financial Solutions
only and maysub-prime
not be used without
dealing
with
mortgages
and
Urban Institute
3
permission

Trend: Increased regulatory concerns for speciality servicers

adding to cost and complexity in achieving compliance
Reasons and Issues of Regulatory Concerns
Federal Housing Finance Agency (FHFA), Consumer Financial Protection Bureau
(CFPB), Financial Stability Oversight Council (FSOC) all argue that the growing volume
of mortgage servicing performed by nonbank specialty servicers warrants additional
attention & potential policy action
CFPBs1 servicing standardsproviding for better mortgage loan application disclosure
and assistance for consumerswent into effect on January 2014
Concerns about the complexity of and risk associated with large MSR transfers to specialty
servicers, including potential disruptions with loss mitigation efforts under way under the
prior servicer
Rapid growth might lead to capacity issues, high credit risk and sharp volume swings
Nonbank servicers are not bound by the same regulatory laws as banks
Difficulties in maintaining interests of borrower, investor & servicer in one decision
(foreclosure v loan modification)
Vertical integration may lead to cost saving & economies of scale, but also has potential of
Impact
of New Regulatory
self-serving
of interestsStandards
through business affiliates instead of investors & borrowers, hence
New
standards
will
add
further
add&to
the cost and complexity in the regulatory compliance
raising doubts about transparency
disclosure.
space
especially has
sinceSolutionstar
the servicers
expected to
integrate
standards
with
Ex- Nationstar
andare
auction.com,
while
Ocwenthe
hasnew
Altisource,
Hubzu,
existing
state regulations,
investor rules, etc.
LendersOne
etc.
Smaller servicers (handling less than 5,000 loans) at slight advantage as they are exempt
from some of these requirement
Large servicers who have already implemented servicing system updates and operational
process overhauls have competitive advantage over others
Key Insight : Large servicers who already comply with National Mortgage Settlement
Standards and will be able to be compliant faster than others, thereby giving them
competitive
advantage
Source:
Nonbank Specialty
Servicers: Whats the big deal? by Urban Institute; CPFB Mortgage and Servicing Standards by PWC
4
For Best Foot Forward Competition at Ocwen Financial Solutions only and may not be used without

Trend: Share Prices over last 5 years and effect of

recent Wells Fargo deal
Source: Yahoo Finance
Ocwen - $78 b,
$40b of mortgages
Wells Fargo Deal

Spree of
acquisitions

Increasing no of distressed loans since 2008 - setup of HAMP (Home Affordable

Modification Program)
Basel III Norms (2013) not applicable to specialty servicers like Ocwen
Sudden increase in market share of 3 non-bank entities
Rising concerns: Capacity, Servicing Transfers, Financial Risks and Regulations and
Business Affiliations
For Best Foot Forward Competition at Ocwen Financial Solutions only and may not be used without
permission

Trend: Increasing consolidation among nonbank

servicers and Offshore outsourcing
Mergers & Acquisitions leading to consolidation in Industry
Ocwen has expanded by acquiring smaller competitors, so has Nationstar & Walter
Investments.
Ocwen has acquired Liberty Home Equity Solutions (2013), Homeward Residential Holdings
Inc. (2012), Saxon Mortgage Services Inc. (2012), Litton Loan Servicing (2011), HomEq
servicing (2010) etc.
Nationstar has acquired Real Estate Digital (2014), Experience 1 (2014), Greenlight Financial
Services (2013), Equifax Settlement Services (2013) etc.
Walterfor
Reasons
consolidations:
acquired
Reverse Mortgage Solutions (2013), Security One Lending (2013)
Increasing compliance costs & declining inventory
Need for new strategies other than refinancing for loan resolution (only 35% of mortgages
wouldve benefited from refinance in 2014); one servicer may gain from loss of others (exWalter gaining from shrinking of Ocwen)
Only through economies of scale, speciality servicer players becomes sustainable
Transfers of MSRs amongst leaders (ex- Ocwen-Nationstar deal worth $25 billion of 142,000
loans)
Partnering up of leaders for rights of bankrupt servicers (ex- Ocwen-Walter partnership for
Residential Capitals mortgage servicing)
Offshore
Small outsourcing
servicers are not as well-capitalized as the banks and this could increaseservicer
disruption/continuity
Ocwen has most no. risk
of offshore employees amongst speciality servicers, Nationstar has few
and Walter has none.
In 2012, Ocwen had 82% employees in India out of 5000 total employees. It increased
onshore employees to 4700 in 2013 when its total tally was at around 10000.
Other players dont provide last stage collection and loss mitigation services offshore like
Ocwen. This gives OcwenFor Best
unique
cost advantage, which can be used to deliver faster
Foot Forward Competition at Ocwen Financial Solutions only and may not be used without
6
services & mitigate compliance cost increase.permission

Trend: Increasing Complaints in Servicing industry

and lesser loan modifications
Loan Modifications
Allegations have surfaced that nonbanks
service fewer loan modifications as
Nationstar and Ocwen are increasingly listed as
compared to their peers
offenders. This might be indication of their
Variations in loan modifications may reflect
growing consumer base
more demanding nature of distressed loans
Ocwen,
Nationstar
and
Walter
serve
acquired by speciality servicers
disproportionate amount of distressed loans as
compared to banking peers, hence the large Decline in nonbank servicers modification
may be due to the fact that they might be
no. of complaints
servicing loans which were already
Looking only at complaints on delinquent loans
modified and failed (poor quality)
serviced, non bank servicers have the lowest
amount of modification/foreclosure complaints This may also reflect that nonbanks have
more subprime loans in their portfolio than
perAverage
delinquent
loansasamong
in
no. of Complaints
% of no. oflargest
Delinquentservicers
loans (2012-13)
prime loans
US, even lower than industry norms
Home Affordable Modification Program (HAMP) loan modification request approvals
GreenTree failed at more than one metric,
7.00%
7.000
GreenTree
6.00%
6.000
hence the higher approval rate
Nationstar

Complaints

5.00%

5.000

4.00%
3.00%
2.00%
1.00%
0.00%

2.00%

1.30%
0.80%

4.300
4.000

Ocwen

2.10% 3.000

Wells fargo

2.000

Chase

1.000

City

0.000

Bank of America
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Key Insight: Banks are holding on to

better performing loans , while moving
Banks
Nonbank
Industry average
their most highly delinquent loans to
Source: Nonbank Specialty
Servicers: Whats the big deal? by Urban
servicers
For Best Foot Forward Competition at Ocwen Financial Solutions only and may not be used without
Institute
7
nonbanks, resulting in more complaints
permission

The next bubble is in mortgage servicing

-Washington & Wall Street (Breitbart New

Thank You

References

http://
www.housingwire.com/articles/31979-will-walter-investment-go-the-way-of-ocwen
http://
www.dallasnews.com/business/headlines/20140508-nationstar-makes-another-acquis
ition.ece
http://
finance.yahoo.com/news/ocwen-financial-intends-sell-additional-111500869.html
http://
www.bizjournals.com/atlanta/news/2015/03/24/ocwen-faces-delisting-from-nyse-s
ells-25b.html?ana=yahoo&page=2
http://shareholders.ocwen.com/releasedetail.cfm?ReleaseID=722838
http://
www.bloomberg.com/news/articles/2014-06-06/walter-gains-share-in-ocwen-nationsta
r-rivalry-mortgages
http://
www.wsj.com/articles/mortgage-loans-move-to-nonbank-firms-1394403407?tesla=y
http://qz.com/177915/youve-probably-never-heard-of-the-company-managing-yourhome-loan
/
http://
www.housingwire.com/articles/28534-the-5-biggest-changes-coming-to-the-mortgage
-industry
For Best Foot Forward Competition at Ocwen Financial Solutions only and may not be used without
permission