Mortgage servicers facing millions of dollars in hurricane-related losses are considering an appeal for relief from a US government policy that leaves them on the hook when a property is irreparably damaged, according to two sources familiar with the effort.
Alarm over the handling of federally insured loans will top the agenda for large servicers as they gather for a four-hour meeting at the Five Star Conference and Expo in Dallas on Monday, one source familiar said. Among topics will be a HUD policy that requires properties be in good repair before they can be conveyed to the agency, leaving the servicer on the hook when insurance doesn’t cover losses, the source said.
“For someone that does large FHA volume, it’s a serious concern,” said one source familiar. “We need to ask for a policy change because the burden with these losses is too big.”
Another mortgage finance executive confirmed that concerns are rising at a servicer used by his company but was unaware of an industry appeal to HUD.
The worry is likely especially acute for non-bank servicers that are less diversified and that have feasted on the Ginnie Mae servicing shed by banks in recent years, said Ted Tozer, a senior fellow at the Milken Institute’s housing finance program and Ginnie Mae’s former president. Options for the companies, should they be hit with costs, could be selling off servicing, he said.
While Wells Fargo remains the largest Ginnie Mae servicer, non-banks PennyMac, The Blackstone Group’s Lakeview Loan Servicing, and Freedom Mortgage are all in the top five, according to mortgage data provider Recursion. Each has between a 7% and 10% exposure to Texas, Recursion data show.
Non-banks in focus
Other non-bank, top 10 Ginnie Mae servicers are Quicken Loans, with a 5% Texas exposure; Nationstar Mortgage, with a 9% Texas exposure; Carrington Mortgage Services, with a 9% Texas exposure; and Lone Star Funds’ Caliber Home Loans, with a 7% Texas exposure, the data show.
Spokespersons for Wells Fargo, Lakeview, Carrington and Caliber declined to comment. Spokespersons for PennyMac, Freedom, Quicken, and Nationstar did not return requests for comment.
Ginnie Mae servicers think they have a good case to seek exceptions to the conveyance policy because it’s unique to HUD, the two sources familiar said. Losses on loans in private RMBS will flow to investors, two non-agency investors said. Losses on loans guaranteed by Fannie Mae and Freddie Mac will be borne by the GSEs, the taxpayers that support them or GSE credit-risk transfer securities.
FHA lending, and Ginnie Mae MBS issuance, has also grown significantly since the crisis, increasing the importance of all participants, down to the servicers, the second source familiar said. The Ginnie Mae MBS portfolio has grown to more than USD 1.8trn from USD 1trn in 2010, according to Ginnie Mae data.
The share of mortgages serviced by the non-banks rose to 24.2% in 2015 from 6.8% in 2012, according to a 2016 US Government Accountability Office report for Democratic lawmakers, including Massachusetts Senator Elizabeth Warren, who called for increased regulation of the companies.
One source familiar said there may be precedent for exceptions from HUD’s conveyance policy in the aftermath of Hurricane Katrina in 2005. But Tozer, who led Ginnie Mae for seven years, was skeptical about even a one-time policy exception because the concept of a servicer maintaining the properties is “critical” for government loan programs.
What’s more, some staff that might be consulted for such a change aren’t yet in place under the new Trump administration, he said. An FHA commissioner has only this week been nominated, though Pam Patenaude, who as a former HUD assistant secretary for community planning and development aided Hurricane Katrina recovery efforts, was confirmed as HUD’s deputy secretary by the US Senate today.
HUD spokespersons had no immediate comment.
Tozer said his biggest worry is with smaller, regional servicers with heavy concentrations in hurricane-damaged areas.
“That’s what scares me,” he said. “These other guys could sell off some other servicing. They have other tools in the toolbox.”
But servicers may also be stressed by the advances they’re required to make on loans that are not current, the second source familiar said. Just two weeks after Hurricane Harvey, and days after Hurricane Irma, one top servicer had already granted thousands of forbearances as part of its immediate response to homeowners, the first source familiar said.
The “number one priority is to get those customers the help they need,” the source said. “But the dialogue behind the scenes” is focused on dealing with the conveyance costs, the source said.
Ginnie Mae is offering help to its issuers with more than 5% of their portfolios in disaster areas, according to a 30 August press release. That could mean aiding issuers in covering advance obligations while forbearing from declaring them in default and authorizing issuers to purchase affected loans from the related pools.