SEC investigating servicers’ collection practices – report

by Ryan Smith22 Mar 2016
The Securities and Exchange Commission has launched an investigation to see if mortgage servicers are giving their profits a nudge by siccing debt collectors on delinquent borrowers too early, according to a new report.

Bloomberg, citing a source familiar with the matter, said the investigation is focused on non-bank servicers – including Ocwen, which has come under previous government investigation for allegedly mishandling foreclosures and other issues.

When borrowers become delinquent on loans, servicers can write them off and send them to outside collection agencies. The SEC is investigating whether borrowers with home equity loans are being given enough time to catch up once they fall behind. Mortgage servicers who send delinquent loans to collections may be entitled to a percentage of whatever collectors recover. That may be higher than the fees the servicers would usually receive, according to Bloomberg. And servicers may cut costs by sending loans to collection agencies prematurely.

Those practices aren’t just bad for the consumer. Sending loans to collections prematurely can also cut into the income banks and bondholders receive from mortgages, according to Bloomberg.

Ocwen declined to comment on the matter, according to Bloomberg. The company did state last year that the SEC had notified it that its use of collection agents was being investigated, and last month the company disclosed that the SEC was conducting an investigation “relating to fees and expenses charged in connection with liquidated loans and REO properties held in non-agency RMBS trusts.”
 
 

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