April 11, 2018
Contact: Richard Loconte, 212-709-1691
DFS FINES NATIONSTAR MORTGAGE LLC $5 MILLION FOR VIOLATIONS OF NEW YORK BANKING LAW
Under a Consent Order with DFS, Nationstar Has Made Restitution of $7 Million to New York Borrowers
DFS Examinations Found Flaws in the Company’s Document Retention and Management
The Mortgage Servicer Will Also Donate $5 Million in Properties or First-Lien Mortgages to Non-Profit Organizations and Hire an Independent Third-Party Consultant to Assess Its Remedial Measures
Financial Services Superintendent Maria T. Vullo today announced that the Department of Financial Services (DFS) has fined Nationstar Mortgage LLC $5 million for violations of New York State Banking Law, stemming from the company’s failure to develop effective, scalable controls that could keep pace with its rapid growth. As a result of DFS examinations, Nationstar has made restitution of $7 million to New York borrowers. Under the consent order with DFS, Nationstar will also donate $5 million in residential real property or first-lien mortgages to one or more non-profit organizations to assist in the rehabilitation of vacant and abandoned properties.
“The company’s failure to fully plan for risks associated with its rapid growth exposed borrowers to increased risks, including in some cases, the possibility of costing them additional money,” said Superintendent Vullo. “Today’s action ensures that consumers will be protected and that companies are held to account for their failures. I appreciate Nationstar’s cooperation in resolving this matter.”
DFS uncovered numerous deficiencies and violations of Banking Law during examinations of Nationstar’s servicing and origination operations. The servicing examination focused on Nationstar’s servicing operations between January 1, 2011 and March 31, 2014; the origination examination reviewed loans produced between March 1, 2012 and March 31, 2014.
DFS’s examinations found that Nationstar did not properly plan for the growth in its business, damaging consumers. Nationstar grew dramatically during the years covered in the examination periods by acquiring large portfolios of mortgage servicing rights and subservicing rights from various financial institutions that were exiting the mortgage servicing business. From the end of 2012 to the end of the third quarter of 2013, the company’s assets increased by more than 140 percent, from $7 billion to $17 billion. At the end of 2012, Nationstar serviced approximately 18,000 residential mortgage loans in the State of New York. By the end of 2015, these figures had ballooned to 91,000 loans. During this same period, its nationwide servicing volume went from 617,000 loans to 2.1 million loans by the end of 2015. On the origination side of its business, Nationstar’s volume of operations increased dramatically between 2011 and 2013. In 2011, the company closed 843 mortgage loans for New York borrowers. By the end of 2013, the company closed 3,169 loans in New York. Nationwide, in 2011, the company originated 16,898 first-lien home loans. In 2013, nationwide origination figures climbed to 97,970 loans.
In Nationstar’s servicing operations, DFS’s examinations found the following:
- The company’s document retention and document management processes showed significant flaws. In many instances, servicing files lacked documentation showing the company’s compliance with laws and regulations specifically designed to protect consumers, including loss mitigation correspondence, single point of contact notices, and annual privacy notices.
- Nationstar’s controls related to its information technology systems were under-developed. For instance, though Nationstar outsourced its IT audit function to a third-party vendor, the company was unable to provide examiners with formal documentation detailing the nature and scope of the arrangement.
By today’s consent order, Nationstar is remediating these problems.
DFS’s origination examination revealed similar shortcomings in document retention practices, including origination files for New York borrowers that lacked fundamental documents, including Truth in Lending Act disclosures, property appraisals, and borrower income documents.
The examination also revealed that in approximately 900 instances, Nationstar failed to fund mortgage loans for New York borrowers within the required timeframe, which in some cases prevented Nationstar’s borrowers from meeting closing deadlines and exposed them to the possibility of incurring additional expenses (and potential liability to counterparties) as a result.
In addition, between 2011 and 2014, the number of consumer complaints submitted to DFS increased almost ten-fold. This disproportionate increase in complaints during a time of growth reflected, in significant part, the company’s challenges in effectively onboarding and adapting its infrastructure to effectively service an ever-growing loan pool. These complaints covered a wide range of concerns, including, but not limited to, errors in payment processing and improperly ordering forced-place insurance for borrowers whose voluntary hazard insurance policy had not lapsed.
DFS’s origination investigation found the following violations of law:
- Failure to obtain the authorization of the Department for the company’s use of multiple domain names;
- Failure to maintain books, records and customer files in a manner required to facilitate a comprehensive assessment of its compliance with Banking Law; and
- Failure to fund over 900 mortgage loans within the timeframe set forth in various loan or other documents for individual borrowers.
DFS’s servicing examination found the following additional violations of law:
- Operation of two branch locations without the Superintendent’s authorization;
- Failure to maintain required documentation in servicing files, including, but not limited to, loss mitigation correspondence, executed origination documents, welcome and good-bye letters, single-point-of-contact notices, and annual privacy notices;
- Failure to maintain a schedule of fees on its website;
- Failure to submit quarterly reports in a timely manner; and
- Failure to file multiple 90-day pre-foreclosure notices with DFS.
As part of the DFS consent order, Nationstar will identify an independent, third-party consultant to assess the sufficiency of measures the company has taken to address the deficiencies and violations of laws, regulations and industry guidance set forth in the consent order.
A copy of the consent order can be found here.